The Internal Revenue Service has plenty of ways to penalize you for mistakes on your tax return. Some of these potential penalties are so convoluted and complex that there may well be disagreement within the IRS on when they apply. However, most people accrue tax penalties for very simple mistakes. Here are some of the more common yet easily avoidable mistakes.
Many people simply put off filing until it is too late, and think that doing nothing is better than attempting to file a potentially wrong return. You can deal with that problem by filing an extension with Form 4868 to buy time. Note that 4868 does not buy you time to pay, just time to file. You still have to make a reasonable estimate of your expected tax payments.
Of course, the best solution to the problem is to keep your records organized throughout the year to make the April filing easier.
The IRS does allow installment programs and other provisions in some cases that can reduce or eliminate penalties and interest, so it really is in your best interest to explore options rather than to send in partial payments on your own (or avoid payment altogether).
You can avoid this penalty by making sure estimated taxes are regularly paid. For independent contracting jobs where the income varies greatly, you can use the "safe harbor" provision by paying 100% of last year's tax liability or 90% of this year's estimate, whichever is less. If you also have a salaried job or your spouse has one and you file jointly, you can cover the taxes by having extra monthly taxes withheld on the salaried position. That spreads the taxes out in roughly the right time period.
With a little attention and vigilance, you can reduce your chances of simple errors that could result in tax penalties and/or audits. Why give the IRS any more of your money than you have to?
This article was provided by our partners at moneytips.com.
To Read More From MoneyTips: