How to Avoid Worker Misclassification Issues Running a business is no small feat. There are…
2019 Tax Penalties and How to Avoid Them
When you think of tax penalties, you may think only of the penalties you would pay for not paying your taxes on time or for committing some criminal offense. But there are many other scenarios in which you might have to pay tax penalties, and you may not even realize that you have made a blunder until you are getting notice of the charges.
Working with a Phoenix tax professional or a tax attorney can help you make the right arrangements so you don’t get charged these penalties or to fight the charges. However, a little education can help you make the right choices so that you never face these charges.
Here is some information about some common tax penalties in 2019 and how to avoid them:
Make Sure You’re Prepaying Enough
For most people, prepaying taxes isn’t an issue. They make their withholding selections with their employer when they start the job, and the tax is automatically taken out of their check. However, many people do this and think they’re safe, but they forget about how their side hustle will affect the taxes they owe at the end of the year, or they don’t realize that their spouse’s income puts them into a different category with different tax obligations.
You need to talk to a Phoenix tax specialist to review all your sources of income and to consider all your potential tax obligations. You will have to pay a penalty if the tax you pre-paid is less than 90 percent of the tax you owe in 2019 or is less than 100 percent of the tax you owed in 2018. However, if you owe less than $1,000 in tax, there is no penalty.
Withdraw Enough from Your Retirement Account
Most retirement accounts allow you to make tax-free contributions. Then that money can collect interest, and you can collect on it in retirement. You cannot allow that money to sit in the retirement account untaxed forever. Uncle Sam expects you to start making withdrawals for your retirement after a certain age, whether you think you need to or not. If you don’t, you’ll be charged a tax penalty.
At age 70-1/2, you have to start making withdrawals from your retirement plan. Each plan – an IRA, 401(k), etc. – has rules for how much you have to withdraw each year, starting at that age. If you don’t make that withdrawal, you will get hit with a tax penalty of 50 percent of what you should have paid. Talk to your financial advisor about calculating the annual withdrawal and what you can do with it instead if you don’t need it for income right away. You don’t want to lose half of what you have because you didn’t make a withdrawal.
Make Charity Distributions Properly
If you don’t feel like you need the retirement withdrawal, you can arrange to make a transfer from your IRA to a charity of your choice. After age 70-1/2, you can make a withdrawal of up to $100,000. You won’t get the charity deduction, but you won’t have to pay taxes on the withdrawal either, which can be a bigger bonus. The withdrawal will also make your adjusted gross income lower, which can lower your overall tax obligation.
Work with a tax professional in Phoenix to ensure that you are making the charity distribution appropriately. Otherwise, you could end up with a tax penalty when you could have had a tax benefit and you were just trying to help others.
Often, these tax penalties are just the result of not knowing the rules or of not knowing what your own obligations are going to be. It’s important that you talk with a certified public accountant, a financial advisor, or a tax lawyer in Phoenix to help you understand your obligations and to take the appropriate steps to avoid penalty.
If you have been hit with tax penalties, contact Silver Law PLC to talk with a tax attorney about your options. Our attorneys can review your returns and file amendments that may be able to help you avoid penalties. We may also be able to negotiate on your behalf to reduce your penalty if it cannot be dismissed. We handle both AZ civil and criminal tax litigation for our clients, offer audit representation, and help with issues like foreign tax reporting and innocent spouse relief. Contact us today in AZ to talk to a tax lawyer about your concerns and to learn about your options.
Silver Law PLC
7033 E. Greenway Pkwy, Ste 200
Scottsdale, AZ 85254
410 South Rampart Blvd, Suite 390
Las Vegas, Nevada 89145