There are many things individuals might be worried about when it comes to taxes. One is that they might accidentally subject themselves to tax penalties. There are a range of tax mistakes that could expose a person to such penalties. These penalties can have significant financial ramifications for a person.
So, guidance on how to avoid such mistakes is something a taxpayer may strongly desire. This is among the types of guidance skilled tax attorneys can provide individuals when it comes to tax planning.
One thing tax penalties sometimes come up in connection to are estimated taxes. Estimated taxes typically regard income earned outside of traditional wages. This includes things like income earned through retirement accounts, investments, gig work and entrepreneurial efforts. Earning a fair amount of income from these non-wage sources could expose a person to a requirement of paying quarterly estimated taxes.
Tax penalties can be issued when a person pays less in the way of estimated taxes than they were supposed to. Internal Revenue Service numbers indicate that, in recent times, estimated-tax-related tax penalties have become increasingly common. Reportedly, in 2010, 7.2 million people received such penalties. In 2015, the number was around 10 million. This is a nearly 40 percent increase.
It remains unclear what is behind this increase. Factors some are pointing to as possibly playing a role are:
- An increased number of people being unaware of their estimated tax obligations. This could be due to things like increases in the prevalence of gig work and many baby boomers hitting retirement age.
- An increased number of people willing to take on tax penalties related to estimated taxes due to recent low interest rates.
Going to skilled tax planning attorneys for guidance is among the things individuals can do when they are unsure of whether they would have estimated tax obligations or what the process is of addressing such obligations.
One wonders what will happen with the prevalence level of estimated-tax-related tax penalties in the next few years.
Source: Fox Business, “Number of Americans Caught Underpaying Some Taxes Surges 40% --Tax Report,” Laura Saunders, Aug. 11, 2017