Tax penalties can apply in a number of situations. One example involves a failure to pay enough taxes during the year. Generally, a taxpayer should account for at least 90 percent of an individual’s tax obligation through withholdings. A failure to do so can result in penalties.
The Internal Revenue Service (IRS) has encouraged taxpayers to avoid this type of penalty, referred to as the estimated tax penalty.
How many taxpayers are hit with an estimated tax penalty? According to a recent publication by Accounting Today, the number has jumped by 40 percent. This translates to almost three million people.
Resources are available on the IRS website to help taxpayers avoid this type of penalty.
What if I cannot manage my tax bills? Other options are available for those who are unable to meet their tax obligations. Options can include an offer in compromise or installment agreement. An offer in compromise essentially involves an agreement between the taxpayer and the IRS for a more manageable payment while an installment agreement involves multiple, smaller payments instead of one large lump sum bill. Both options can reduce tax obligations while helping the tax payer come into compliance with applicable tax law.
It is important to note that approval for either option listed above can be complicated and that other options may apply. The best option will depend on each person’s situation. As a result, it is wise for those who are having difficulties meeting their tax obligations to seek legal counsel. An experienced tax attorney can review the details of your situation and provide guidance on the best way to come into compliance while mitigating the risk for any potential penalties.