Every working American is obligated by civic duty to pay taxes. Millions of Americans, however, are in trouble with the IRS. While some tax-related issues are intentional and others are unintentional, it might be helpful to recognize the typical causes of tax-related issues and steer clear of them.
The following are 10 common ways taxpayers run into IRS trouble. If you find yourself owing $10,000 or more to the IRS or state, reach out to our tax resolution firm, LBS Tax, for a free 15-minute consultation.
1. Failing to File Returns
Simply failing to file a tax return is arguably the easiest method to draw attention from the IRS. Some may choose not to file, particularly those who are expecting a tax bill. Failure to submit fines may arise from this, and they can mount up rapidly. This will not be ignored by the IRS. It’s also crucial to remember that failing to file any of the legally needed tax returns might result in a $10,000 fine and a year in prison.
2. Incorrectly Reporting Income
Underreporting income, whether done knowingly or unknowingly, is concerning. Audits may be initiated in response to disparities between the income declared on individual or business returns and the income reported to the IRS by employers (via W-2s or 1099s).
One of my recent clients asked his tax professional to lower his taxable income -which resulted in a 2 year audit of his tax returns.
3. Claiming Excessive Deductions
Tax deductions can greatly lower one’s tax bill; however, going overboard and taking excessive or unauthorized deductions can be troublesome. This involves inflating corporate expenses or charitable gifts.
4. Ignoring IRS Notices
Notices of minor errors or requests for further evidence are frequently sent by the IRS. Ignoring these could make the problem worse and have more dire repercussions. We find that often, clients may not have even opened these notices.
5. Engaging in Tax Evasion Schemes
The IRS had the option to file criminal charges for illegal tactics, which included hiding money in offshore accounts, identity theft, and fake tax returns, among other serious felonies. Utilizing the tax system to lawfully find ways to reduce their tax liability is not illegal for taxpayers. On the other hand, some individuals receive incorrect counsel or become overly imaginative. Seek advice from a tax expert before implementing any tax-saving measures.
6. Misclassifying Workers
We often see business owners attempting to save money on taxes by designating employees as independent contractors rather than employees. If the IRS determines they are not a contractor, there may be back taxes and penalties if the IRS finds that this was a misclassification.
7. Not Making Estimated Tax Payments
Estimated tax payments are frequently required on a quarterly basis for self-employed people and certain other taxpayers. There may be penalties for missing these payments or underestimating the amount owed, which frequently results in an unexpected tax bill.
8. Not Reporting Foreign Income
Worldwide income, including that from foreign bank accounts and trusts, is normally subject to reporting requirements for both U.S. citizens and resident aliens. There may be severe consequences if something is neglected or purposefully left out.
9. Engaging in High-Transaction or Cash Businesses
Businesses that deal mostly in cash (such as salons, building sites, or eateries ) are frequently targeted by the IRS for underreporting revenue. Maintain accurate records in case you are audited.
10. Ignoring State Tax Obligations
This focused on federal taxes, but often, individuals also have state tax problems. Neglecting to file state returns or not paying state taxes can lead to trouble at the state level. In Arizona, these can be assigned to the attorney general’s office.
What happens if you land in tax trouble?
Once started, IRS issues can easily get out of hand and result in significant fines, penalties, or even legal action. People can keep a clean record and prevent needless issues with tax officials by being aware of these typical hazards and making sure they are complying with the rules. It’s always a good idea to consult tax professionals or other subject matter experts when in doubt.
Go to LBS Tax for All Your IRS Troubles
Contact our tax resolution firm if you’re having issues with the IRS here at LBS Tax Services, owe $10,000 or more in back taxes, or are being audited. We’ll set up a free, private consultation to go over your choices and assist you in finding a long-term solution to your tax issue.
We offer a wide range of services:
- Tax Returns
- IRS Payment Plans
- Tax Relief Program
- IRS Debt Forgiveness
- And More