Agh! Tax season and crunching numbers are huge stresses. During that tough time, it is common to make mistakes and find yourself dealing with tax issues. Well, nothing to worry about. This blog will explain everything you need to know about common tax issues and how to solve them easily.
Tax Issue 1: Penalties:
Such a terrifying word! Penalties can be imposed for many reasons. You can count on:
- Bad check penalty
- Failure to pay
- Failure to file
- Estimated tax penalty
We will explain them in a while, but first, let’s explore why the IRS imposes these penalties on residents.
Basically, the idea is to make people follow the instructions. Otherwise, there can be consequences, warnings, or penalties. These penalties can range from 0.5% of your owed amount to 25%, depending on the nature of the penalty.
Bad Check Penalty:
The IRS imposes a bad check penalty when you issue a check and it bounces. The reason for check bounces can be mismatched signatures or insufficient balance. This penalty can be any amount besides the bank charges.
Furthermore, the IRS may need you to pay the owed amount by other payment methods. You can count on certified checks or money orders instead of personal checks.
Failure to Pay:
Failure to File:
Estimated Tax Penalty:
An estimated tax penalty is imposed on both businesses and individuals. This penalty is applied due to the gap between the estimated tax amount and the paid amount.
For instance, if your estimated tax is $3,400 and you pay $1,000 in taxes, you will encounter a penalty on the remaining amount. Simply put, the penalty will be similar to the failure to pay penalty.
The IRS has different rules for calculating penalties, which depend on the type of penalty to apply, the delay, the amount, and more.
Tax Issue 2: Math Errors:
Math errors are another common tax issue. Thinking it’s simple? The IRS sent millions of emails due to computation errors, mismatch value errors, missing details, and failing to meet eligibility criteria. According to the 2022 report by the IRS, 9.4 million math error notices were sent to taxpayers.
The problem might seem simple, but it can clear your way to penalties. So, it’s better to avoid these mistakes firsthand. You can hire a certified public accountant or tax advisory service to prepare and file taxes on your behalf.
Count on Tax King Services. We offer accounting and bookkeeping services for you with the least possible amount of work and on-time work completion guaranteed!
Tax Issue 3: Complex Filing Requirements:
The IRS rules and form are complex. On top of that, the resident has to file multiple forms, depending on their tax situation. Typically, a person might submit forms such as Form 1040, Schedule A, Schedule B, and other forms.
Moreover, deduction and credit systems make things more complex. There are multiple deductions and credits you can apply as a US resident that will reduce your taxable income. However, understanding them and digesting the complex tax information can be a big hurdle.
Additionally, you need to file separate forms for deductions and credits, which makes the process more tangled. But if you hire an accounting service, you will be able to sit back and relax. Meanwhile, everything will be handled for you. Additionally, you will have ease of mind!
Tax Issue 4: Dual Tax System:
Working with the dual tax system is one of the most commonly reported income tax issues. Some states apply their own taxes, which means you have to pay taxes to the federal and state governments.
Talking about NYC, it applies income taxes with its own set of rules, which can differ from federal income tax laws. Both state and federal governments are independent in making changes to their laws. Ultimately, this makes dual tax laws hard to understand.
Although every bad thing comes with a good side, in the dual tax system, you can qualify for federal credits and deductions as well as state tax deductions.
Tax Issue 5: Tax-Related Identity Theft:
Identity theft is a crime and a common concern for millions of Americans. Every year, millions of US residents are suspected of identity theft. Additionally, millions are presumed to be victims of identity theft.
Identity theft means someone stole your personal information. It can be your SSN (Social Security Number) and financial details to file refunds in your name. The IRS will send your refund to the mentioned bank account information, and you will get nothing at all.
Solution for Identity Theft:
Tax Issue 6: Tax Audits:
Tax audits are a common concern for American residents. Most people are afraid that any mistake can lead to audit territory. However, only 1% of taxpayers are audited each year. Common mistakes can’t lead to audits unless there is serious misleading information or something that is problematic, like false statements, missing income sources, or a lack of clarity.
Although audits can be stressful, a casual examination of your tax situation, submitted statements, and refund records. All you need to do is carefully read the letter you received from the IRS. Check what documents they are expecting from you and actively respond to them. There can be three possible results from your audit:
No Change:
If the audit results in no change, it means the IRS agrees with you. There is no change to make in your filing or refunds. You can continue the process your way. No further action is expected from your side or the IRS.
Agreed:
If you agree with claims and adjustments made by the IRS, you need to follow the instructions and pay any owed amount. Additionally, if it’s all about your refunds, you agree with their adjustment and are ready to get the adjusted amount.
Disagreed:
If the audit results in disagreement, you can appeal the case for further inspections. An appeals officer will look at the statements and make the decision.
Tips to Stay Away from IRS Tax Issues
Tax issues are inevitable. You can’t totally control them. However, there are some common practices that can reduce your chances of encountering a tax issue.
- File your taxes before the deadline ends to avoid any penalties and last-minute stress.
- Prepare and file for all income streams.
- Double-check your forms for errors and mistakes.
- Be sure to sign the form before submitting it. Unsigned forms have zero value.
- Hire a professional accounting service to avoid stress.
Common Tax Help Questions and Their Answers
1- Why do taxes keep going up?
- Your tax can go up if you aren’t applying for deductions and credits the government offers you. For instance, if you simply file your returns without applying for the STAR program (deduction available for homeowners) or Renters program (credit available for renters), your tax might get high.
2- Who can help with tax issues?
- Typically, a certified public accountant, enrolled agent, or tax advisory service will be a good fit to help with taxes. You can ask your family and friends about who they use for tax issues.
3- What should I do if my tax is wrong?
Get professional help from a CPA or tax accountant. If you are in a complex tax situation, you can also consider tax attorneys and tax advisory services.
4- How do I resolve my tax issues?
Seek professional help. If you want to handle everything by yourself, consider your tax situation. Act according to your tax issue and discuss it with a professional accountant. An accountant will be the best person to help you solve any tax issue.
Wrap Up:
An IRS tax issue can put a strain on your daily life for at least three and a half months. Additionally, in the case of audits, the stress can spread a lot more. So, work proactively to file your taxes and get help from a tax advisor.
Moreover, if you want to fix tax problems now, you can give a call to Tax King Services. We offer top-notch accounting and bookkeeping services to our valued customers.
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