6 Tips to Save on Filing Your Taxes & Preventing Penalties

By Mike

The following is a guest post from Manuel Davis. Manuel is a tax accountant and writer who has helps individuals resolve various problems relating to unpaid taxes.

6 Tips to Save on Filing Your Taxes  Preventing Penalties

It is very common for taxpayers to end up paying more in fees and penalties on their annual taxes than they should. Below are 6 tips that can help you avoid unnecessary expenses and penalties that many taxpayers incur each year.

  1. File Your Own Taxes:

    If you do not have a complex tax return you can save quite a bit of money by filing your tax return on your own. There are many computer programs and online solutions that can make filing taxes extremely easy, even if you know very little about taxes. If you made less than $56,000 (amount could change slightly, updated on IRS site January 15th) in 2009 then you can file for free using the IRS’s FreeFile. The Free File program allows free federal income tax preparation and electronic filings through a partnership between the IRS and the Free File Alliance LLC. If you made over $56,000 you can use various other programs that are similar to FreeFile but will charge a fee (which is typically much less than if you went to a tax professional). Some of the most common programs are TurboTax, H&R Block, and TaxACT.

  2. Find a Good Tax Professional:

    If you do have a complex return (you own stocks, bonds, mutual funds, rental properties, a home) then it is a good idea to hire a good tax professional to help you prepare your return. Even though these tax professionals can sometimes be a bit pricey, you will likely save money overall because of the additional deductions they will likely find that you may not have thought of. When finding a tax professional it is a good idea to be weary of the storefront tax professionals. Sometimes the storefront tax professionals are just seasonal tax preparers and they are doing tax returns for extra money (sometimes they can be good, just generally not as good as year round tax professionals).

  3. Do Not Efile Unless It Is Free:

    Many programs like FreeFile
    from the IRS as well as others will allow you to efile your taxes for
    free. However, where many software programs like TurboTax and others
    make additional revenue by efiling your state tax filing. Unless you
    need your refund ASAP, you can save $35 to $50 dollars easily by just
    printing out your state tax return and mailing it in instead of efiling

  4. Prepare Taxes Early & Take Your Time:

    If you gather your documents and plan on doing your taxes well before the April 15th filing deadline then it is much more likely for errors to be avoided. Waiting until the last week does cause pressure to rush and it is much more likely to miss deductions or make simple mistakes that can mean hundreds or thousands of dollars. Even if you plan on going to a tax professional it is a good idea to get started early because they too see a rush of clients in April and are more likely to make mistakes.

  5. File Your Taxes On Time:

    Not filing your taxes on time is the most important thing you can do to prevent unnecessary penalties. Most people that do not file their taxes usually do not file because they know they cannot pay what is owed. Not filing because you cannot pay is the worst thing you can do. In fact, the penalty for not paying is much less when compared to the failure to file penalty. The failure to file penalty is 5% a month of the total amount of taxes owed. This penalty will be charged until it becomes 25% of the tax amount owed. Even if you forecast that you will not owe taxes, not filing will prevent you from receiving any type of refund. Moreover, if you fail to file after 3 years, your refund can be relinquished and the IRS in many cases may file a “substitute of return” for you which will not include all deductions and possible credits (often times leading to a tax liability).

  6. Pay Your Taxes On Time:

    The penalty for not paying your taxes on time is a half of a percent for each month that the tax remains unpaid. If you cannot pay your taxes on time or in full it is important to work with the IRS in order to prevent penalties from adding up. If your balance remains unpaid the IRS can place a lien on your assets and they will eventually levy (seize) assets as well. The IRS does have many options available to those taxpayers that cannot pay their taxes. The most common way for individuals to pay their taxes if they cannot pay in full is by setting up an IRS Installment Agreement. An Installment Agreement will allow you to pay back taxes in monthly payments until the entire balance is paid off. With an installment agreement you will still have to pay interest on the outstanding taxes owed but the failure to pay penalty is lower (50% less) than what you would pay if you did not setup an agreement like this.

Being aware of the common pitfalls that many Americans fall into each year with filing their taxes can better help you avoid them. The best thing you can do in order to prevent unnecessary charges and penalties is to start your taxes early and if any problems arise be proactive about finding a solution for them. The IRS is much more accommodating to problems than most people realize and it is likely they will work with you to find the best solution.

image source: alancleaver_2000

6 Responses (including trackbacks) to “6 Tips to Save on Filing Your Taxes & Preventing Penalties”

  1. Jenn @ Frugal Upstate Says:

    Hubs has always filed our taxes himself using e-filing, but this year with creating an LLC that is taxed as a sole proprietorship I think I better get a professional’s help. . .

  2. Don@Moneyreasons Says:

    I’ve used TaxAct (standard version) for the last three years! It’s free with no income limitations. There are 2 way to use there software, online or a downloadable (I usually use the downloadable version).

    The most complicated thing I have is stock investments and retirement accounts. But it handles them like a champ.

    TaxAct also has free federal EFiling (but not state free state efiling).

  3. Jimmy Kibler Says:

    I use H&R block online because they have all of my information and it takes me about 30 minutes each year to do it, print it out and send it in. Only about $30.

  4. Jean Says:

    No. 2 point is too general.
    Perhaps you should add how to find a GOOD tax professional tips to complete the article. How do we classify whether this tax pro is good, and other one isn’t. Reputation? Qualifications? Certifications?

  5. Justin L. Eaton Says:

    I posted the other link to amended returns as well, in case you have to re-file your return due to some kind of tax prep fly-by-night company

  6. Pete Price Says:

    I just came across this brilliant CPA, Lou Patten in Lake Worth, Florida. After searching for help with my taxes for years, I’ve finally found exactly what I needed. He’s affordable and handled my taxes personally. I highly recommend him. Here’s his website http://www.loupattencpa.