Mastering Tax Planning: A Guide to Avoiding IRS Penalties
We've all been there - tax season rolls around and you realize with dread that you owe more than expected. Not only is there a balance due, but you may face hefty penalties too. No one wants to deal with the stress and financial hit of IRS problems. Luckily, there are proactive steps you can take to minimize penalties. On a recent episode of his Tax Talk Thursday podcast, financial advisor Ralph Estep Jr. shares his best strategies for avoiding common penalties charged by the IRS and how to stop stressing about taxes.
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Failure to File or Pay on Time
One of the biggest mistakes is missing the tax filing or payment deadlines. Failing to submit your return by April 15 results in a "failure to file" penalty of 5% of unpaid taxes per month. And not paying what you owe in full incurs a "failure to pay" penalty too. Ralph's advice? File for an extension if needed to avoid late fees. And even if you can't pay it all, make a partial payment by the due date to show good faith effort. This keeps penalties lower.
Underpayment Throughout the Year
The IRS also charges penalties if you owe more than $1,000 come tax time. There are exceptions if you paid 90% of your total tax or 100% of last year's tax amount.
Ralph stresses proper tax planning is key. Review your withholdings and estimated tax payments to stay on track. Make adjustments if needed to dodge underpayment penalties.
Communication is Key
No matter your situation, Ralph emphasizes the importance of communicating with the IRS instead of ignoring notices. Apply for payment plans, offers in compromise, or hardship status if needed. Silence will only make matters worse over time.
By taking a proactive, diligent approach each tax season, you have the power to avoid many common penalties. Ralph's sage advice can help take the fear out of taxes. Be sure to check out his full podcast episode for all the insider tips.
