5 Ways to Avoid Legal Problems during Tax Season
Tax season is almost here. It is usually accompanied by too much paperwork and confusion. Without proper preparation for this season, you can find yourself facing the law. Too many time people have been caught on the wrong side of the law not for being criminals but because of ignoring small important details. Tax season is all about details. Gathering your documents and gathering all the relevant details and doing the calculations.
Common mistakes to avoid
Thinking because you didn’t receive a W-2 you do not need to report the income.
Many people make this mistake. People think the government is only after some specific tax from specific incomes. That is not the truth. The government defines income as any money you receive from whatever source and includes compensation for services. So don’t make the mistake of thinking that your income is not taxable.
If you earned it, then the government expects tax from it. It feels good to pay as little tax as possible but not reporting your income is the wrong way to avoid tax. According to the law, you can face jail time for not reporting all your income. To avoid legal problems, it is safe to pay tax for everything you made. You can only hide for a short while before they catch up with you and that won’t be pleasant.
Misspelling of words and names
Tax filing is known to be a numbers thing, but words and names are important as well. While filing your tax returns always check your spelling and the names you put down. If you put down a different name, whether it’s your child’s name or spouse’s, your tax return process may be slowed down by the IRS. If the names you put down don’t match what the IRS have, then your process will be slower.
This is common to people who just got married. Girls often change their surnames when they get married. It is always good to alert the SSA when you change your name to avoid problems. In the case of a divorce, make sure you inform the tax agency on time before filing your tax returns. This will save you a lot of time.
This is the most common error. When you make an error during calculations, you can end up owing more money to the IRS than you had or even reduce your tax refund. You can avoid this mistake by using the tax returns software. The software does the calculations for you, and this reduces errors. However, you still need to be careful not to enter wrong numbers. The IRS always goes through your report. Errors will be found, and you may find penalties.
Missing the deadline
It is a common occurrence that people always rush on the last minute. People miss the deadline thinking they still have time to file tax returns. Try your best not to miss the deadline. If for some reasons you miss it, fill the 4868 form to get an extension. Failure to do so can cause you to pay some penalties. Luckily, the deadline for this year has been extended to April 18.
Tips to know while making tax returns
Start and finish early
Even if the deadline is up to April, filing your tax returns early comes with some benefit. First, if you have some refunds, then you will get your money faster and earlier. Secondly, you avoid the confusion that comes with last minute rush. People make many mistakes when they realize that time is no longer on their side.
Missing a deadline will cause the IRS to charge you some penalties and increase your interest rates. It is good to gather your document early and start your calculations immediately. This will give you more time to think and to proofread to find any errors.
Make use of all credit and deductions allowed by the law.
The law allows reduced taxes to people with specific situations. Research on what the tax law says and how the deductions are made. This can be your chance to pay less tax and still be on the safe side of the law. You can do this through several different ways.
File a 1040A or 1040 to regulate your deductions.
This is suitable for college students. Here are a few things that they should be aware of:
Tuition and Fees Deduction
College students can use this law for a tax deduction. When you qualify for this system, then the amount of income that is used to calculate your tax shall be reduced. Using this system your taxable income can be deducted up to $4,000. This means your tax will be lower than the actual amount of tax your income is worth.
Student Loan Interest Deduction
This system also deducts student’s taxes. For students with an income less than $80,000, this is for you. You are given a chance to lower your taxable income comparative to the amount of interest rate you pay on your student loan. If you qualify for this deduction system, you will be notified officially by mail. Not all loans can qualify, but it is worth checking out.
The key to staying in line during this tax season is to follow the law. Know what the law expects from you and do that. File your returns as early as possible to avoid last minute rush. Remember to use your Tax ID. Often time, people forget to put this number down. Your Tax ID is crucial for tax calculations as it contains all information on previous transactions. You can use this number to claim tax credit such as educational tax credit and child tax credit.
Finally, file all your income because you can be sure that the IRS will come for you if they have a suspicion about your reports. Audits are still around, especially for wealthy people. Citizens working abroad are also likely to get IRS audits. This is a quick way to take you down if you have been committing tax fraud. Trying to use some tricks to avoid tax can lead to heavy penalties and possible prosecution.