Taking Control of Your Taxes
Most people don’t enjoy having to file tax returns, let alone having to pay a bill to the government. But failing to handle your tax obligations can cost you dearly. Whether you take an adversarial stance or you’ve simply fallen behind on your filing duty, there may be dire consequences in store if you don’t right the ship in a timely fashion.
Keep in mind that the IRS is not out to get you. They simply want you to fulfill your reporting requirements, paying the applicable amount as you go. But if you bypass the critical first step in the tax process – failing to file – it’s impossible to take all of the steps that follow. And this type of negligence will rouse the interest of the IRS, and can prompt them to exercise all the power at their disposal.
When to File
If you’re a W2 employee, meaning that your taxes are withheld by your employer year round, the filing deadline is April 15. While all individual taxpayers file a 1040 annually, if you’ve taken a contract position, you are responsible for paying your own taxes. Additionally, you’re required to estimate and pay taxes throughout the year; these quarterly dates are April 15, June 15, September 15 and January 15. The individual or company you work for will issue you 1099’s, which detail what income you received. These records will help you keep track of not only how much money you made, but how much in taxes you’re responsible for paying. In order to be compliant, you must file, estimate and pay taxes on income you receive by each of the quarterly dates. Failure to do so can trigger penalties, interest on unpaid taxes and, eventually, IRS action.
When You Don’t File
In the event that you don’t file your return – whether you’re a W2 employee or a contractor – the IRS will send you notices asking you to take action. It’s important to remember that your employer has already sent the government the same income records that were sent to you. In other words, the IRS knows how much you made, even if you didn’t file. If you don’t get caught up on your returns, the IRS will ultimately file for you using a Substitute for Return.
This substitute allows them to assess what you owe, based on the information provided by your employer(s) and bank. The downside to this Substitute for Return is that it will not include valuable deductions and credits that would otherwise offset your tax liability. This is significant, particularly if you are a contractor; work-related deductions can be critical to avoiding a colossal tax bill. Prolonged disregard to IRS notices can lead to collection efforts such as a wage garnishment or even a bank levy.
How to Catch Up
If you’ve simply fallen a few months behind in your filing duty, get your return in as soon as possible. On the other hand, if you’re missing several payments or years’ worth of returns, you may want to consult with a tax resolution company before proceeding. Your unfiled years may ultimately yield thousands of dollars in back taxes, not to mention mounting penalties and interest. A licensed tax professional can quickly make sense of the situation, providing you with a fast, viable resolution. Remember, there is no tax problem that cannot be undone without the help of a seasoned tax professional – even if you have unfiled taxes.