The IRS knows that taxpayers research how to avoid paying taxes, so why would they make it easy? The power of the people resides in getting educated, and a financial advisor, Bountiful, UT based is ready to support you in your quest for knowledge.
When thinking of the Internal Revenue Service, what comes to mind? What emotions do you feel, or what do you envision?
For many Americans, it’s stress, worry, confusion, frustration, fear, lack, pain, or some combination of all of them. We know people might picture a giant book of complicated financial and legal jargon. Endless intimidating forms with codes can seem like a sea of self-doubt or inadequacy.
The Good News
All of that is entirely normal if you have not been taught to understand the tax code, how it’s enforced, and who’s implementing it. When we learned the tax code for the first time, we felt much the same way. Lay all fears to rest by learning the ropes.
The entire taxation system created by the IRS acts as its own gatekeeper, using confusion and breadth as its primary defense. However, approach it with a key and unlock the secrets!
How does charitable giving affect taxes? This is the most common question and way to pay less on taxes. The IRS says they encourage us to consider charitable contributions. And yes, the max amount to donate also changes.
In better news: there are opportunities within the tax code to help you save. As CERTIFIED FINANCIAL PLANNERs™ in Utah, here’s our list of the top six secrets the IRS doesn’t want you to know about your taxes.
1. You Can Remove the Penalty on Early Withdrawals
Did you know that you can get around the penalty for taking early withdrawals from your retirement accounts?
Many taxpayers are probably aware if they take money out of their IRA or 401(k) before age 59½, the IRS will add a 10% penalty tax on the distribution – in addition to taxing the distribution as income.
However, if they commit to taking the same amount from their account every year, they won’t have to pay the penalties on the distributions. This is known as the Substantially Equal Periodic Payment (SEPP) rule.
The amount you can take is figured by one of three calculation methods offered by the IRS. You must take the distributions for at least five years or until you reach age 59½.
However, doing this may significantly worsen your retirement position. Consult with your financial advisor to determine if this is a viable solution for you and see how it might affect your retirement.
But, if you really need the money, at least you can avoid the 10% penalty.
2. You Probably Won’t Be Audited
Headlines say the IRS’s ever-decreasing budget is a hot topic right now.
As a result of its dramatic cuts in recent years, the IRS has reduced its personnel, including auditors. This has resulted in a vast reduction in the total number of audits.
I am NOT telling you to cheat your taxes. I am NOT advising you to lie on your return to pay fewer taxes. Please, DO NOT commit tax fraud.
My point in mentioning this is simply to reduce your stress. Based on the current budget and priorities, being audited is relatively unlikely.
3. There Will Likely Be Delays on Refunds
Although the IRS says most refunds will be sent within three weeks of receipt, experts warn otherwise, projecting weeks of delays.
Currently, the agency is still working through 2020 tax returns. The existing backlog will likely create significant delays on its own, even if the 2021 returns go smoothly. Plus, the variety of COVID-related complications affecting the numbers of this year’s returns will probably slow IRS personnel’s work even further.
The best things to do are file early, file online, sign up for direct deposit, and get the numbers right.
Any return which needs to be manually reviewed may experience delays.
4. The IRS May Owe YOU Interest
The IRS is good about telling us when we owe them penalties and interest but significantly quieter when they owe us money.
If the IRS doesn’t issue your refund within 45 days of the return’s due date – or the date it accepted your tax return, whichever comes later – it owes you interest for every day it is late. Keep that in mind as we now know about this year’s expected delays.
5. File All Legally Required Tax Returns on TIme
I know this one doesn’t sound like much of a secret, but hear me out.
You may disagree with the amount the IRS says you owe in taxes and not want to send the payment for that amount. Even if you decide not to send the payment, still file your return on time.
Yes, the IRS will come back for the money they say you owe, but you won’t have to worry about the 25% late penalty charge they would otherwise be tacking on. From this point, communicate why you didn’t pay the total amount.
Plan ahead and stay on time with tax return filings.
6. The IRS Wants Your Money
The IRS doesn’t want to go to court, seize assets, or put people in jail. They want to be paid in cash and want it to be easy. If we communicate and show cooperation, they will usually reciprocate.
They want taxpayers back in the system as a current taxpayer and recoup the money owed. Because of this, they may be willing to negotiate a deal for back taxes owed, including penalties and interest.
Requirements to qualify for dealmaking are typically rigorous, and it may be beneficial to seek expert advice.
The Bottom Line
Don’t live in fear of the IRS. Yes, it’s scary and intimidating to get a notice from the IRS about delinquent tax debts or unpaid penalties. Yes, they can use aggressive collection activities to recoup the money owed.
But, remember this: The IRS is not a robotic system. It’s made up of people who are just doing their jobs and are willing to work with you.
Don’t be complacent; respond to notices and seek help from your Bountiful, UT located CERTIFIED FINANCIAL PLANNER™.
CERTIFIED FINANCIAL PLANNERS™ at Advanced Retirement Strategies
Working with a CERTIFIED FINANCIAL PLANNER™ is an excellent investment of your time and money. With the high standards for CFP® certification, you’ll know you’re getting the expertise and knowledge of a highly-trained and educated professional who will always act in your best interests and with the loftiest ethical standards.
Our team of retirement planners and investment advisors in Bountiful, Utah, specializes in helping diligent savers with $250,000 or more of investment and retirement assets (not counting your primary residence) prepare for and then transition into retirement.
If you’re looking for a CFP® to help you live the retirement you have dreamed of, contact us now.