Almost everyone makes tax mistakes at some point in life. Some errors, like failing to use tax breaks or tax-advantaged accounts, simply reduce your wealth, but others, like failing to file your return, can be detrimental to your future. In the worst-case scenario, you could lose your home and assets. For this reason, contacting a local tax resolution specialist is crucial. Your tax preparer can analyze your situation and help you optimize your planning and strategy.
They will compile all the necessary information and then file your return for you. If necessary, they will get in touch with the IRS on your behalf and have your fees or debts reduced or eliminated. What’s more, a specialist can have a look at your lifestyle and savings strategy to check that you are making the most of any tax breaks you’re eligible for. This could save you thousands in the long run.
What Are the Most Common Tax Mistakes a Local Tax Resolution Specialist Can Help You With?
In the US, taxes are extremely complicated, and the rules change almost every year. It is therefore not surprising that most citizens haven’t optimized their tax strategy and are paying the IRS more than they have to. Fortunately, a good tax specialist can help you figure out the best ways to reduce your burden and pay as little as possible while still following all the government’s rules and regulations.
If you’re up-to-date with your taxes, your specialist will focus on helping you access tax breaks and tax-advantaged accounts. However, they can also work with you if you have tax debt. In such a case, the professional will explain the options and help you access the IRS forgiveness program. In some cases, they can also have your penalties removed from your account.
Filing or Paying Late
Filing your taxes late is one of the worst things you can do because it increases the size of your debt significantly. For every month you don’t file, you have to pay 5% extra, up to a total of 25%. Additionally, interest on your outstanding bill is calculated on a daily basis. As a result, your bill can quickly spiral out of control. Even if you’re not currently able to pay the whole balance, you should file your taxes as soon as possible.
The penalty for not paying on time is equally severe, but it accumulates slower than the failure to file penalty. Additionally, there are options, such as paying in instalments, that can help you avoid fines. Sometimes, penalties can be removed, especially if the taxpayer has never had an issue before. If you’re worried about your tax return, you should speak to a specialist, who can help you with the filing process and evaluate which options you are eligible for.
Failing to Contact the IRS About the Forgiveness Program
The IRS believes that every taxpayer should be able to pay their debt, so it’s quite hard to get it written off. However, there is a forgiveness program that can lighten the burden. The earlier you apply for one of the options, the better, since you won’t accumulate penalties on your account. If you’re able to pay some money each month, you might be eligible for an installment agreement, which spreads out the debt over a longer timeframe.
Taxpayers who are unable to meet their obligation can make an offer in compromise, which allows them to pay only a part of their debt. However, this option can be hard to access, and you’ll have to prove that you can’t pay the full amount in a reasonable timeframe. Those who have no surplus income can have their debt frozen by “Currently Not Collectible” status. Your tax preparer can help you evaluate these options and apply for the one that suits you best.
Not Considering Taxes When You Earn Additional Income
In the US, tax is usually deducted at the source, which means that it is taken out of your paycheck before you receive the money. This makes it much easier for you because you don’t have to save up for tax throughout the year. However, around 20% of the tax paid to the IRS is not collected at source, so the taxpayer has to pay the money directly from their earnings.
This could apply to you if you’ve started a side business that is separate from your main income source. Unfortunately, you can’t keep all the money you make. To avoid problems such as an audit, you have to declare your earnings to the IRS and pay tax.
Not Using Tax Breaks
There are countless tax breaks available to US citizens, and they are the best way of legally reducing your tax bill. Not using them is like giving away free money. For example, parents are eligible for the child tax credit, which can be worth $3,600 per child. In some cases, you can even get this credit paid out in advance. Similarly, the American opportunity tax credit is designed for students, who can claim back some of the money spent on tuition and materials.
Other useful breaks include the student loan interest deduction, the mortgage interest deduction, the self-employment expenses deduction, and the educator expenses deduction. Each tax credit or deduction has its own rules, so it’s best to speak to your local tax resolution specialist if you’re not sure what you’re eligible for.
Not Using Tax-Advantaged Accounts
One of the most common tax mistakes people make is not fully utilizing all their tax-advantaged accounts. If you’re a regular saver, you should consider opening a 401(k) retirement account because any money you put into this doesn’t get taxed. Since you can now add over $20,000 to this account per year, it can make a huge difference to your tax bill.
The health savings account (HSA) and the individual retirement account (IRA) also come with tax advantages. If you’re one of the lucky few who can save more than $20k per year, you can reduce your current or future tax burden even further by choosing these accounts.
Failing to Hire a Tax Preparer
As you can see, there are many ways your taxes can be optimized. Unless you’ve thoroughly researched all the tax breaks and tax-advantaged accounts, it’s likely that you are currently overpaying. Therefore, you could benefit from working with a tax specialist even if you don’t owe the IRS anything and you’ve always filed your return on time. Your tax professional can evaluate your situation and help you develop a legal tax reduction strategy.
Tax mistakes can cost you a five or six-figure amount over the course of your life, and some errors can even put your assets, such as your home and your car, at risk. If you’re worried about your current situation, you should speak to a local tax resolution specialist, who can analyze your taxes and let you know what improvements you need to make.
The IRS forgiveness program encompasses a number of options, including the installment agreement and the offer in compromise, which can make it easier for you to pay off your debt. What’s more, you could be eligible for tax breaks you don’t know about. Get in touch with us at Geaux Tax Resolution in Lafayette, LA to find out more about our services or to speak to a well-qualified tax preparer.