When you owe money to the IRS, you can't escape the debt. You have heard the horror stories about the IRS garnishing wages, levying bank accounts and even seizing assets to cover an unpaid tax bill. There are a few ways you can keep from owing the IRS. With proper planning, you'll even be able to turn tax season into the time of year you anticipate rather than dread.
Update Your W-4 Form
Submitting an updated W-4 form to your employer ensures the proper amount is withheld from your paycheck. Underpaying your taxes throughout the year can lead to an unpleasant surprise when you prepare your return. If you go through a divorce or you alternate claiming a dependent, you want to make sure your W-4 reflects the changes for the year. It is always better to overpay than to underpay. Any amount you pay in excess of what you owe is refunded when you file taxes.
Claim All Deductions and Credits
Deductions and credit reduce your taxable income. There are a variety of deductions you may not even realize you are entitled to declare. If you recently upgraded your home to make it more energy-efficient, you may be eligible to report a portion of the cost and installation fees. Students can receive credit for tuition and education expenses by claiming the Hope Credit or the American Opportunity Credit. If you lease a car that you use for work, you can deduct a portion of the lease payment. Taking advantage of all possible deductions and credits can significantly lower your tax bill.
If you are self-employed or claim certain deductions, it is important to keep records and receipts. Although you are not required to submit documentation along with your tax return, you will need to supply the information if you are audited. Without documents to support your income or deductions, you could find yourself unable to claim the income or deductions.
File on Time
Submit your tax return on time to avoid late penalties. For each month your tax return is late, the penalty increases by 5 percent, up to a maximum 25 percent. At the time of publication, the minimum penalty for filing a late refund is $135. If you can't get your taxes completed on time, contact the IRS to request an extension. You also want to keep from filing your taxes too early. Wait until you have received all W-2 or 1099 forms from your employers before filing. Don't try to estimate annual earnings based on the year-to-date amount shown on your pay stub. Double-check your taxes for accuracy before submitting. A slight mistake can become very costly.
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