If you find yourself behind on your taxes for any reason, you must take a step back and revise your tax payment strategy. The cost of inattention is severe; the IRS will put all of its resources towards making you pay what you owe.
People miss out on paying their taxes for many reasons. Some might be more obvious than others, but that doesn't make them any less valid.
Oversight Filing
Failing to file a tax return is one of the most common mistakes taxpayers make. If you live in and earn income from the United States above a certain amount during any given year, though, you are required to both pay taxes on that income and report it by filing a federal tax return.
There are three primary criteria the IRS uses to determine whether or not you have to file a return: your income, filing status, and age. If you reach a specific income level as dictated by law, then it is generally required that you file. The amounts let you know how much money one needs before having to file taxes and adjust each year to accommodate inflation.
Under-Withholding
Many people are unaware that if their employer doesn't withhold enough taxes from their paycheck throughout the year, they will more than likely owe money to the IRS during tax season. This is called "under-withholding."
The underpayment of taxes generally happens when an employee fills out an IRS Form W-4 (completed once hired) and claims too many tax exemptions. Exemptions allow employees to have less income withheld from their paychecks for taxes throughout the year.
You're able to file a new W-4 at any time. If you discover that you've given the government too much money, don't worry! You'll receive the money back when you file your income taxes.
Income Has Increase
To put it simply, the more money you make, the higher taxes you'll likely owe- especially from income sources that don't withhold taxes like freelance work or selling stocks.
Furthermore, you might have to pay self-employment taxes. Since no one is taking out the IRS's withholding taxes from your income each month, you will only owe taxes during tax season - unless you make your quarterly tax payments.
Failing to Pay Estimated Tax
If you're a business owner or entrepreneur, another way you might fall behind on taxes is.
Depending on their income and estimated tax payments, most self-employed people pay taxes quarterly.
Self-employed people do not have an employer to withhold taxes from their paycheck, which is usually a good reminder for those who might forget to file their yearly taxes. However, if you're self-employed and don't make estimated tax payments throughout the year, you will end up owing a large amount in taxes at the end of the year.
Older Children
Looking for ways to cope with your children leaving the nest? The Child Tax Credit can be a great way to ease the financial burden. But once your children turn 18 and leave home, you no longer qualify for this credit.
If your child is over 17 but in college or living at home, you can still file them as a dependent on your taxes. Keep the IRS updated on any changes to your children's situation so that you can be sure to file correctly.
