How may I reduce my tax liability, and why is this important?
Could you perhaps explain the reason for this year’s astronomical tax bill? Do you wish there was always a way to file your taxes without incurring any financial penalty?
Most of us are frightened of owing any money to the IRS when it comes time to file our taxes (IRS). The percentage of the average American worker’s paycheck that goes to taxes is proof of this.
That’s puzzling, considering that most Americans don’t seem to worry about being obligated to pay back anyone else. Understandably, taxpayers might feel nervous and worried about their financial situation due to the Internal Revenue Service (IRS).
Tax debt can arise for several reasons. People often owe money to the government because of the following scenarios. You must reconsider your tax payment arrangements if you have fallen behind on your taxes for reasons other than a lack of financial resources. The IRS will relentlessly pursue you until they have collected all the money they are owed.
Having Inadequate Record-Keeping
You are failing to file a tax return before the deadline is one of the most common and expensive mistakes a taxpayer can make. In contrast, if you are a US citizen and your yearly income is above a certain simple threshold, you must report and pay taxes by submitting a federal tax return.
The IRS looks at your age, filing status, and income to determine if you need to submit a return. After reaching a specific income threshold, filing tax returns becomes mandatory under the law. The values are reevaluated and adjusted annually to reflect inflation.
Income that is significantly greater than the norm
Your tax burden will increase in proportion to your increased income. When paid hourly, working a lot of overtime or receiving a pay increase might cause you to enter a higher tax bracket.
Changes to Deductions
If you did not correctly follow the guidelines for the deductions and credits you usually receive, you might have to pay more in back taxes this year. Earned income tax credits, for instance, are subject to annual limitations. You might not qualify for the exemption if your income was higher this year than last. Equally important, the child tax credit is used by many parents to cut their tax bills considerably. Your child may no longer be eligible for this credit due to having passed the age or income threshold at which they no longer get the benefit.
Changes in Work Situations
The W-4 form you filled out before starting your new job may result in a tax bill. Using this form, you can modify the amount of tax withheld from your paychecks. Reducing the amount of tax withheld from your income might result in a larger tax bill at the end of the year.
You may fix this for the upcoming tax year by filling out a new W-4 form and sending it in. Remember that the IRS is not the intended recipient of this form; instead, it should be sent to your employer.
Your tax situation might be significantly altered if you’ve just switched to working on independent contracts rather than for an employer. No mandatory tax withholding is needed for contract worker compensation. You must make a single payment to the IRS for all of your tax obligations this year.
Why do I get a Tax Bill and how did this happen?
The most straightforward approach to track your tax refund or payment and obtain a detailed accounting of any changes is to hire a financial professional or service firm to handle this for you.
This assistance might be provided through an electronic filing system, or it could be provided in the form of a personal consultation with a tax professional.
Contact a tax professional
At Ideal Tax, there are tax attorneys, CPAs, and former IRS officers on staff who are ready and happy to help you with the IRS fresh start program. They also maintain a commitment that ensures timely response and the highest degree of customer satisfaction possible. In addition, they’ll be able to provide you with a wide range of options specially tailored to your IRS issue.
Conclusion
It’s a good idea to put money aside in case you need to pay a large tax bill in the future, significantly if your work or the way you file your taxes has changed, your children have grown up and moved out, or you have a side venture that brings in more money.
Doing this is a permanent obligation. Instead of dreading tax time every year and asking yourself, “Why do I owe taxes again?” a financially stable lifestyle that involves keeping track of any changes to your tax status will save you time and stress.
