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Avoid the Tax Penalty Headache

No worries…you still have time to avoid or reduce a 2017 tax penalty when you file your individual income tax return next year, even if you were assessed one in 2016.

Due to the increasing number of taxpayers subject to estimated tax  penalties, the IRS launched a new web page – Pay as You Go, So You Don’t Owe – to help you avoid that once-a-year “YIKES!” moment resulting in the proverbial taxpayer headache.

Between 2010 and 2015, the number of penalized taxpayers jumped from more than seven million to 10 million, almost a 40 percent increase. To avoid these “taxing” penalties, the IRS urges you to review your options carefully:

  • Adjust withholding on your paychecks, pension or certain government payments, such as Social Security. (Refer to https://www.irs.gov/individuals/irs-withholding-calculator to help determine the proper amount to withhold.)
  • Pay most of your tax during the year, as you receive income, rather than being in arrears at the end of the year;
  • Make sure to pay 90 percent of your tax liability throughout the year, either through income-tax withholding or by making estimated tax payments;
  • Research possible tax changes due to life events such as marriage or divorce;
  • If starting a part-time business or side job, increase your tax withheld from your primary employer to avoid owing tax due to additional income;
  • Make estimated payments based on income you expect to earn and any credits you expect to receive;
  • If you owe money, meet the required estimated tax payment deadlines (April 15, June 15, September 15, and January 15 of the following year).

With some prudent financial planning, penalties can be avoided if you owe either less than $1000 after subtracting withholding and estimated tax payments, or if you pay at least 90% of your tax for the current year or 110% of the tax shown on the return for the prior year, whichever is smaller.

For additional tips and resources designed to help you understand tax withholding, make estimated tax payments and avoid unexpected penalties, visit IRS.gov/payments. You may also use Form 1040-ES to calculate these payments.

If you need a proven tax accounting firm to assist with your individual or business tax preparation or planning, our team is available to assist you. Contact us at Office@CPAsite.com or 904-396-5400.

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