1. Unexpected Tax Bills - Receiving a tax bill that’s much higher than expected.
- Why It Happens:
- Miscalculating quarterly taxes.
- Not setting aside enough for taxes throughout the year.
- How to Prepare:
- Regularly estimate your tax liability.
- Set aside a portion of your income for taxes each month.
- Work with an accountant to ensure you’re paying the correct estimated taxes quarterly.
2. Tax Penalties for Misclassifying Workers - Penalties for treating employees as independent contractors.
- Why It Happens:
- Misunderstanding the difference between employees and contractors, or intentionally misclassifying to avoid taxes.
- How to Prepare:
- Learn the differences between contractors and employees.
- When in doubt, consult a tax professional to ensure proper classification.
- Use IRS guidelines to help clarify the classification rules.
3. Failure to File or Pay Penalties - Penalties that pile up when taxes aren’t filed or paid on time.
- Why It Happens:
- Forgetting the filing deadline, not having the money to pay, or simply procrastinating.
- How to Prepare:
- Set reminders for important tax deadlines.
- File your taxes even if you can’t pay the full amount—partial payments help reduce penalties.
- Work out a payment plan with the IRS if needed.
4. Audits & the Fear of Being Unprepared - The fear of receiving an audit notice and not having your records in order.
- Why It Happens:
- Incomplete records, claiming large deductions, or mistakes in your tax return can trigger an audit.
- How to Prepare:
- Keep organized and thorough financial records all year round.
- Double-check deductions to ensure they are accurate and justifiable.
- Don’t panic if you’re audited—respond promptly and provide the requested documentation.
LINKS:
Independent Contractor or Employee
Worker Classification 101
