The United States tax system is complicated. To make matters even more difficult to navigate, the government recently changed the tax code with the Tax Cuts and Jobs Act (TCJA). A failure to follow the rules can result in serious fines and, depending on the mistake, potential imprisonment.
The following tips can help you avoid both penalties:
- Pay as you go. The United States tax system is a pay as you go system. The Internal Revenue Service (IRS) expects taxpayers to pay on a regular basis. A failure to do so can result in a serious financial penalty. Those who receive a regular paycheck likely have withholdings taken from their pay. The bigger issue is present for those who run their own business. Business owners and entrepreneurs are wise to pay quarterly taxes to the IRS to avoid coming up short at the end of the year.
- File taxes on time. The IRS will charge a penalty if you do not file your taxes on time. This can add up to 25% of the owed tax amount or more depending on when the returns are filed.
- Make the most of credits and deductions. Credits and deductions can lead to big tax savings. However, a failure to follow the rules can trigger an audit. As a result, it is wise to keep records to back up claims for credits and deductions. One example, the business deduction. If you take a deduction for business expenses, be sure to keep records to support the claim.