You likely wouldn't set out to create a problem with the IRS. Nevertheless, there are some very easy-to-make mistakes that can quickly put you on their radar. While you shouldn't strive towards paranoia when it comes to dealing with the IRS, exercising caution when handling your taxes is an excellent policy to maintain. Keep in mind some best practices and some to avoid as we slowly move towards the next filing season (which will be here faster than you think).
What Have You Done for Your Taxes Lately?
It's a common misconception that you only can or should concern yourself with taxes around April each year. In fact, there are some smart tactics you can employ throughout the year to ensure your tax bill doesn't sink you. Have you made any charitable contributions? As long as they're made to a federally-recognized organization, you can include them among your return deductions (just make sure to keep your receipts!). This is a good practice to spread throughout the year, rather than trying to make a big lump sum payment in December in the hopes of cutting your tax bill.
You'll also want to do a monthly inventory of receipts for work-related expenses, or those for approved home improvement deductions. Again, this is a lot easier to do throughout the year rather than scrambling come tax time. Prevention is the best cure for any future tax problems.
Don't Forget to File – and Pay – On Time
This might seem like a no-brainer, but thousands of Americans put off filing their taxes each year…sometimes until it's too late. The reality is that the inception of so many tax problems comes from basic filing negligence. If you think that you're going to need more time to file, request an extension. Just remember that any liability that you owe is going to be due on April 15th; failure to pay by this date can result in penalties and interest.
Of course, if you're self-employed, you already know that you should be paying estimated taxes quarterly throughout the year. In case you need a refresher, though, you may find IRS.gov a useful resource. Remember, whether you're a regular employee or a contractor, failing to file and pay your taxes in a timely fashion can trigger IRS collection activity. And it will almost always be cheaper to pay everything up front, even if this means breaking out the credit card or borrowing money.
Check Your Return Three Times
If there was an area of your life to be overly cautious, it would be your taxes. As such, triple-check your tax return before pressing send (or applying that stamp). What to pay particular attention to? Verify that all of the numbers you entered for your income is correct, that you are reporting all income info for the year, and that each of your deductions has a corresponding receipt. And if you have any concerns that you're going to miss something, don't hesitate to get some assistance with your return. Misreported income and inaccurate information can lead to an audit, or worse, an assessment of debt.
Action and Assistance
Preventing tax reporting mistakes is essential to avoiding IRS collection action. This includes wage garnishments, bank levies, liens and property seizures, not to mention bloated penalties and interest. If you find yourself receiving IRS notices, contact a licensed tax professional straight away. Prevention is always the best policy, but correcting an IRS issue is easy enough with a seasoned tax professional.