You might be fanatical about your taxes, but there's a better chance that your practices have plenty of room for improvement. Regardless of your income, there are some smart tactics that can help you make the most out of every tax year. Simultaneously, you may have some poor habits that you should consider correcting.
Staying on track with your taxes requires a little discipline, coupled with exercising some healthy attentiveness. This does not mean scrambling to make amends during the final hour of tax season. Rather, tax health should be monitored throughout the year. And the fewer nasty tax habits you carry, the less reason you have to worry about the IRS.
Don't Accept Income Under the Table
A precedent you definitely want to break is taking money in any manner that could be considered clandestine. The IRS will designate this type of behavior as tax evasion, and getting caught can mean trouble for you and your employer. What kind of trouble? Willfully evading paying or reporting taxes can lead to stiff penalties and, in some cases, incarceration. While it might be tempting to take some side work, even to supplement your income, make sure you report it and pay the appropriate amount of tax.
Avoid Skipping Estimated Payments
If you're a contractor, this one's for you. Since tax is not withheld from your paychecks, you're responsible for estimating and paying taxes on a quarterly basis throughout the year. Waiting until the annual filing deadline of April 15th is ill-advised for a couple of reasons. First, the IRS expects you to make your tax payments during the year and can attach penalties and interest for failing to comply. And from a practical sense, it's far easier to pay your taxes a piece at a time rather than all at once. No matter how badly you think you might need the money, attempting to pay a tax liability for an entire year's wages can be difficult, to say the least.
File Your Return the Right Way
You know how much money you made, how many dependents you can claim and what deductions and/or tax credits you're eligible for. If you don't, ask a tax preparer. What you don't want to do is make false claims on your return; this includes overlooking income, attempting false dependent claims or – gasp – filing a fraudulent return on behalf of someone else. No amount of money is worth the risk you take with the IRS, who can respond with collection and possible legal action.
Don't Neglect Your Debt
You may think that you can't afford to pay your tax debt, but the truth is there are plenty of options available to you. Depending on your financial circumstances, you may simply need to request an installment agreement. This is ideal for taxpayers who need a few months or possibly years to square away a liability. Or, if you can't afford any amount, you may qualify for Currently Not Collectible; this prevents the IRS from taking action against you or requiring you to pay until your financial situation improves.
These types of resolutions can be acquired by making a request with the IRS or, if you require help, a licensed tax professional. By obtaining a legal resolution, you're avoiding collection efforts that can include a wage garnishment or bank levy. If you've been putting off a tax debt, now is the time to get back on track. A licensed tax professional can help you in this endeavor and advise you how to avoid other bad tax habits.