Failure To File Your Tax Returns Have Consequences
Wouldn’t it be nice if you could take home your full paycheck and not have any taxes withheld? I know that almost every American taxpayer dreams of this but taxes as we know, is one of the main streams of government revenue. Through payroll, Income taxes are regularly withheld from the employee’s paychecks and submitted to the different taxing authorities.
Self-employed individuals and independent contractors, however, are responsible for paying their own taxes, directly to the government because the benefit of withholding taxes is absent. A portion of the income taxes goes towards retirement in the Social Security and Medicare Tax buckets. Whenever you earn income it is required for you to pay these two particular taxes
As these taxes are paid, the information is reported to the Social Security Administration so that the taxpayer can receive credit towards retirement. Now, did you know that failure to file your federal income tax return will cause you to miss out on receiving these important retirement credits?
Some small business owners may not have any other retirement income to rely on so it is really important to pay these self-employment taxes.
Freelancers and individuals who work in the gig economy that makes money from their “side hustles” are sometimes reluctant to disclose these earnings on their tax return. Take note that you are considered self-employed if you operate a trade or business for yourself and do not have an employer. Your earnings must be reported on Schedule SE then to your Form 1040.
Misinformation or listening to the wrong people, results in a failure to report self-employed earnings. It really does not matter if you have not officially set up an LLC or corporation. I myself, at one time, received such incorrect advice and shockingly, from a well-known tax service. Well, I found out soon enough, that was bad information and thankfully, I had a CPA prepare my back tax returns.
The filing threshold if this applies to you is if your net earnings from self-employment is $400 or more, you must file a tax return. You may also be required to make quarterly estimated tax payments because the IRS is a “pay as you earn” system. If the required amounts aren’t paid timely and sufficiently, an underpayment penalty can apply at tax time.
The IRS has made it really convenient and simple for individuals to create an online account, where they can submit their quarterly payments directly. Too many small business owners fall into the pattern of ignoring their tax responsibilities, which have led to business failure. Don’t let that be you. Maintaining tax-compliance is absolutely vital to the continuity of your business.
The IRS allows you to file a late tax return up to three years from the due date and you most likely will be able to claim a refund if you are due one. The fear of owing taxes is never a reason to avoid filing your tax return and there are many negative consequences resulting from failing to file. One of the first documents any bank or lending institution will request when conducting business, is a copy of your tax returns.
Consider seeking out the assistance of a reputable tax professional, particularly if you have a complex business or tax situation. You will have one thing less to worry about by turning your tax matters over to someone who knows the tax rules. Missing key deduction or even paying more taxes than you should, is a reason enough to seek help. Getting an IRS notice can be very scary and nerve-wrecking
SLS Tax & Accounting is available to individuals and small businesses year round. If you do not have an accountant or a tax professional, look no further. You can have the peace of mind you deserve by entrusting your tax preparation to an expert who is an Enrolled Agent. You will never have to worry about dealing with the IRS on your own. The best part is you get to spend more time serving your clients and growing your business.
I hope that you have gained some value from this content. Your feedback is greatly appreciated so please feel free to leave me a comment. You can also like, share it and subscribe so that you don’t miss out on future blogs. I thank you in advance for taking the time to read it.