How to Avoid Penalties/Fees on Your Income Tax

Tax season is here and many people get hit with penalties/interest that could have been avoided if they carefully reviewed their returns before signing at the bottom. Reviewing your paychecks are just as important because many of the items on your returns come from information you provide to your employer. Here are a few ways to avoid having to pay.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• W-2 Forms
• 1099 Forms if applicable
• Social Security Cards
• Driver's License

1. File your return before April 15. This is the date your income tax return is due, if you file after this date you will be charged a late payment fee and can double or even triple the amount, if the IRS finds that you owed money. You avoid paying the late payment fee if you show reasonable cause, but unless you were in the hospital it is doubtful that this bill will be waived.
2. don't give yourself a headache Inspect your paychecks and W-2 forms for accuracy, such as the number of exemptions or dependents being claimed. Some places use 99 exemptions or dependents as a default and if this is your first job you may not even realize it is there until you file your return. Having this as the number of exceptions or dependents is like saying that you have ninety nine people that you support and live with you. You may not get charged for this mistake but do you really want to find out when you are filing your return?
3. Show all income received whether it was ten dollars or a hundred dollars. This means all interest payments, retirement payments, tips, and any other income not considered wages from work through an employer.. If you receive a 1099 that only tells you that it is for your records only, you do not have to include in your return.
4. Avoid withdrawing from retirement plans, such IRAs and 401k’s, instead take loans whenever possible from these accounts. You are charged up to 20% or more for taking withdrawals if you are not 59 ½.. And if you forget to add the1099 form that is sent to you at the end of the year, you will be required to pay the amount you withdrew plus any interest/penalties they impose. Taking a loan is a better option, but if you default on the loan it becomes the same as a withdrawal.
5. get a refund not a bill Claim the Earned Income Credit, if your allowed to. Earned Income Credit is an income tax credit that is refundable and is given to low-income families who work and have children. EIC can be given to families without children if they meet certain criteria.

Tips & Warnings

• Knowing as much information about filing your taxes can help you get refunds instead of bills. The IRS website can give you more information on everything that has to do with taxes.
• Always file your tax return even if you know that you owe taxes because if you don't, they will find out and they could take away any assets(your house, cars, investments etc.) and garnish your wages(your paycheck will go to the IRS instead to you) that you receive and even fine you and/or put you in jail.