It’s a common big-time problem for the self-employed — that is, getting hit by an unexpectedly large tax bill. This is often due to a variety of factors, such as not making estimated payments.
OK, then what can be done? Well, I recently talked to Mike Slack, who is a Tax Research Analyst at H&R Block, Inc. (HRB). And yes, he provided some great advice on the matter.
#1 – Double Take
You need to make sure the tax owed is accurate. No doubt, the IRS can make mistakes. Or, you may have missed out on taking deductions or credits. This is why it’s a good idea to hire a tax professional – such as a CPA or Enrolled Agent – to get a review of your return.
Next, once you know what you need to pay, then see if you can reduce or even eliminate your penalties. To do this, you will write a letter to request an abatement (which is attached to Form 843) and provide a reasonable cause, such as:
- A serious illness
- You received bad tax advice
- Your home or business was destroyed
- You have suffered a harsh financial situation
Interestingly enough, the IRS also has something called the “First Time Abate.” With this, you should be able to get rid of all your penalties for late filings and late tax payments.
#2 – File Your Return