Avoiding Tax Penalties: A Guide for the Self-Employed
Are you self-employed and tired of feeling the sting of tax penalties? You're not alone! One of the most common mistakes that we see that leads to these unwelcome tax penalty surprises is not paying quite enough through quarterly payments. This can be solved pretty easily though! With a bit of proactive planning with your tax professional, you can steer clear of those pesky penalties that are all too common and keep more of your hard-earned money in your pocket and away from the IRS.
Here are a options to use to help avoid those penalties.
1. Plan Ahead: One effective approach is to pay 90% of your estimated current year tax bill in equal installments throughout the year with quarterly taxes.
2. Know Your Options: Another option is to pay either 100% or 110% of your previous year's tax bill with quarterly taxes. The percentage you should choose depends on your income and individual circumstances.
3. “Close Enough”: If you are within $1,000 owed to the government when the bill is due, the IRS will typically not impose the penalty
It's important to remember that even if you diligently make quarterly payments, you'll still need to settle any remaining balance at the end of the year. However, by taking proactive steps to stay ahead of your tax obligations, you can eliminate the nasty penalties of underpayment penalties.
Tax penalties stink, but they can be easily avoided when planned ahead! By staying proactive and informed, you can avoid the headache of underpayment penalties and keep more of your money you’ve earned!
Disclosures:
Remember, this article is not intended to provide tax advice. Be sure to consult with a qualified professional to determine the best approach for managing your tax obligations.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy. AI (artificial Intelligence) sourced articles may be prone to error, due to the vast information they assemble from the internet. Always confirm any questions or concerns you may have with an experienced professional. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual