Did You Know That Everyone Is Required to Pay Estimated Taxes Throughout the Year?
The IRS describes taxes as “pay-as-you-go.” You want your money when you earn it, and the IRS wants their money when YOU earn it. Typically, taxpayers pay via withholding from their paycheck or by making quarterly estimated tax payments throughout the year.
It is important to consult with a tax professional to ensure either:
- your W4 is allowing for the appropriate federal income tax withholding from your paycheck or
- you are making accurate estimated quarterly payments based on your income
What happens if there is a failure to pay estimated tax?
If you do not timely pay estimated tax payments, and there is a tax liability owed in excess of the tax withholdings and overpayments from prior years, the IRS will automatically calculate a penalty (computer generated), and interest will begin accruing. There are a variety of exceptions that might apply which could reduce or eliminate these penalties. If you have already incurred penalties for failure to make estimated tax payments, a tax professional can assist you with communicating with the IRS, possibly help get the tax liability reduced, and help get you back on track.
What can you do to avoid penalties?
Being on time with tax filing and payments is important, overall. Being organized and keeping good records can also help you understand your obligations and stay on top of when and what needs to be paid. If this becomes overwhelming, a tax professional can help with organization and provide assistance with:
- Reviewing current tax filing and payment requirements
- Reviewing tax preparation documentation
- Handling discussions with the IRS and/or state to determine the status of your compliance
- Future tax planning
Tax professionals work to stay current on all applicable guidelines, changes in laws, and deadlines; and they are authorized to assist taxpayers and work with the IRS and/or state on the taxpayer’s behalf.
In closing, a taxpayer’s lack of awareness concerning taxes owed may lead to unintended consequences with the IRS and/or tax authorities, which may result in penalties and interested and cause subsequent negative tax implications. The taxpayer should work diligently to understand their tax filing and payment requirements. If you are struggling to comprehend how to begin, or do not know how to address an outstanding IRS and/or state tax matter, contact Bobby Hoffman or Tabitha Relota in our tax department for help.
