Thursday, October 23, 2008

Paying Your Fair Share

I work for a tax resolution firm. Every day I see the hard times people have that owe the IRS money. They owe for just a few reasons.

They fail to file their tax returns and the IRS prepares returns for them, called SFRs, and they end up with a liability with huge penalties and a lot of interest. This causes a lot of hardship for the taxpayer and puts them in a hole that is VERY hard to get out of.

They fail to withhold the correct amount of taxes from their paychecks. This makes them short on their withholdings at the end of the year. When they file their return , they have not had enough taxes withheld from their paychecks to pay their tax. Therefore they can not pay what they owe and end up in a deficit. You can figure how much you need to withhold from your checks by using this withholding calculator form the IRS website.

Another reason why people owe the IRS at the end of the year is self employed people fail to make their estimated tax payments each quarter during the year. A self employed person is paid by the job and is usually issued a 1099 misc. at the end of the year. No taxes are withheld during the year and the tax payer is not only resposible for the reagular tax amount he would owe for working but also the self employment tax. The self employment tax is what an employer would pay, matching FICA, if the taxpayer was employed earning a W-2. So as you can see, a self employed person will owe more tax that a regular employee.

A taxpayer really needs to set up a budget to live by and stick to it. Make your estimated tax payments if you are self employed and make sure your withholdings are correct if you are a W-2 employee. You do not want to owe the IRS. They can make life VERY miserable for a taxpayer.

If its to late for you and you owe the IRS now, please get in touch with a reputable tax resolution firm to resolve your tax debt issue.

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