You don’t want to mess with the Internal Revenue Service. Just one small mix-up when dealing with your finances can financially impact you tremendously.
For instance, in recent years the IRS has decreased its filing of levies, liens and wage garnishments. However, in 2013 alone, approximately 1.7 million levies were filed, which is still nothing to sneeze at.
Beware of these red flags that may raise the eyebrows of the IRS:
1. Filing too many exemptions. An exemption offers a major tax deduction, and some taxpayers can’t resist the enticement to report more exemptions than they’re allowed.
You can only claim exemptions for yourself, a spouse and for all “dependents.” Dependents really need to meet specific criteria, however, so make sure you follow the IRS guidelines so that you don’t unintentionally file an extra exemption.
2. Being unaware of taxes levied for early withdrawal from certain retirement plans. Should you withdraw from a retirement fund such as a 401( k ) or IRA before you’re 59 1/2, you may be confronted with a 10 percent federal penalty on your investments, in addition to a state penalty and an income tax on the money withdrawn.
3. Not paying adequate taxes when self-employed. Lots of people who own their own businesses don’t have a clue how much they have to pay in taxes. The tax format for a self-employed person – what to pay, how to pay and what can be deducted – is considerably complex, so it’s easy to become confused.
4. Not paying taxes on winnings. It is necessary to report all gambling winnings, including winnings from lotteries, casinos and horse races, as income.
For people who are in trouble with the IRS, there are various programs available that can provide debt relief if a taxpayer qualifies. Taxability Tax Service helps its clients determine if they meet the requirements for one of these IRS programs. If you are in need of IRS tax help, contact Melissa Northrup at Taxability Tax Service for a free consultation.