Life can throw a lot of problems our way, but some issues are just more problematic than others. Take tax issues, for example. If they are small, you can find a way to resolve them quickly and easily. If they are big, however, they could be costly and take a long time to fix. In a worst-case scenario, tax issues could even result in hefty penalties, or worse—jail time. With this week leading up to Valentine’s Day, the last thing anyone wants is any tax-related heartache.
In order to help you avoid a trouble pile-on, here are some common tax issues, and ways you can avoid them.
Top Tax Issues
Some tax issues arise from changes to legislation that taxpayers might not have caught up with yet. Other issues are oversights. Still, others—to be blunt—are just plain irresponsible. Here are some common tax issues that taxpayers may run into.
The most important thing to remember is that you need to report all your income in order to keep the IRS off your back. In other words, if you are a tipped worker, be sure you are reporting your tips, and not just your per-hour wage. After all, the purpose of filing tax is to make sure you appropriately pay income taxes on the income you earned.
For those who had previously taken a deduction for alimony payments, those payments will no longer be deductible starting in the 2020 tax year. So, it is important that taxpayers know before filing taxes, so that they don’t mistakenly try to deduct alimony payments.
Shared Responsibility Payment
This payment is also called the individual mandate penalty, which was a 2018 Tax Cuts and Jobs Act tax code change. While the good news is that taxpayers will no longer receive a federal penalty for not proving their health insurance, they must be careful because they could still face state penalties if the state still adheres to a portion of that law.
Self-Employment Quarterly Estimate
Workers who are freelance or contract workers are required to pay taxes, and it’s something they must initiate on their own. So, workers who expect to pay at least $1,000 in taxes in the upcoming year are expected to estimate their quarterly tax payments, and make those payments by the deadline.
Tax Form Errors
Tax forms are not exactly the most user-friendly things we deal with on a daily basis. So, it is understandable that many people struggle with filling out the forms. However, rushing through the forms and not double-checking the boxes for accuracy can cause delays when processing your taxes.
While it may seem like a no-brainer, the filing deadline is not really negotiable. Still, many taxpayers fail to file their taxes on time. Furthermore, many fail to make quarterly tax payments on time. So, make sure to remain aware of the payment and filing deadlines, which are put in place for a reason.
Ways to Avoid Tax Issues
The first thing to emphasize is prevention, prevention, prevention. I cannot say it enough. So, what is the best way to prevent tax issues? Well, it is to educate yourself. Tax laws are fluid, so be sure to stay current on the latest information to tax laws that affect your business.
Next, know what constitutes income. Be aware that there are two categories of income—active and passive. Active will be the wage you earn from the work you performed. Passive income will be things such as rental property income or dividends on investments. Besides this, don’t forget tips for all businesses. In fact, restaurant workers make up just one of many types of tipped workers these days. For example, we’ve seen a large influx in Uber and Lyft drivers, and online teachers who are able to receive tips.
Also, don’t make careless mistakes, such as typos, on your tax forms. If you don’t double-check anything else, be sure to review spelling, check the social security or Fed ID number, bank account information, and, for heaven’s sake, make sure to sign and date the form.
Finally, be responsible by having your deadlines marked on your calendar so that they don’t creep up on you. If, at the end of the day, you don’t feel equipped to understand tax issues, or you simply don’t have the time, the best thing to do is outsource.
Ways to Deal with Tax Issues
Now, since we are all human, we all make mistakes. So, keep that in mind as you are doing business. Still, while you are on the road to accepting that mistakes are inevitable, remember you still have a responsibility to clean up your mess. In fact, it isn’t so much that you make a mistake—because you will—but how you fix it that counts. Here are some steps to take if you run into trouble along the way:
- Research – Google your problem. If it is something you can fix on your own, do so. If not, seek expert help.
- Prepare – If you owe money, make sure you get the funds in place to be able to make a payment ASAP. Any delay can result in additional penalties.
- Be Proactive – If you realize you’ve made an error on a form, don’t wait for the IRS to contact you. Instead, reach out to them once you’ve double-checked everything, and be ready to address all corrections at the same time.
If you make a mistake, remember not to panic. Still, you want to have a sense of urgency in dealing with the matter, so make sure you clear your calendar to take care of the business necessary for rectifying the situation.
Tax Issues Are Your Problem, but They Don’t Have to Be
When it’s all said and done, taxes—and the broken heart that come along with their issues—are your responsibility. However, tax issues don’t have to be a problem if you know how to avoid them, or if you know the best way to fix your mistakes. So, make sure to continue to stay current with the most recent tax laws. Also, educate yourself on income matters. Finally, review your IRS forms for accuracy. Doing these simple things will only make your life easier, and make any messes that much easier to clean up.