Most tax reporting that does not comply with IRS regulations will result in penalties. Yet because there are so many forms to fill out and procedures to follow, Michigan taxpayers may not even understand the requirements to follow.
Penalties to Underreporting
In recent years, the IRS has been penalizing taxpayers for underpayment of estimated taxes. Under federal and state laws, many taxpayers need to make quarterly estimated tax payments. This requirement especially applies for self-employed individuals and employees whose wages are not subject to withholding. It can also apply to salaried and hourly employees who made additional amounts of money not subject to withholding.
While taxpayers receive refunds for overpayment of estimated taxes, those not paying enough will come to the attention of tax authorities. It appears that the IRS is paying much closer attention to estimated tax payments these days. According to IRS data, those taxpayers penalized for underpayment increased by 40 percent from 2010 to 2015.
What some call the “sharing economy” and the “gig economy” may be factoring into this. The sharing economy concerns large amounts of money made through online transactions. The gig economy simply refers to a business culture that relies heavily on independent contractors and temporary workers. In either instance, those participating are often required to pay estimated taxes.
Figure out Estimated Tax Payments
Figuring out what estimated tax payments should be can be difficult. This is especially true for individuals who receive income unevenly during the year. However, there are tax strategies available for such people. As everyone’s circumstance is unique, what works best for one individual may not work well for another.
Discussing your circumstances with a tax attorney can prove extremely beneficial. No one wants to face unexpected penalties and an enormous tax bill because they did not report correctly taxes owed.