No one likes to discover they owe taxes after preparing their annual income tax returns. That unexpected obligation may interfere with a person’s monthly budget. Depending on the situation, a taxpayer may even be unable to pay the entire amount.
When it comes to avoiding a tax debt and the ensuing collection dispute or controversy, one proactive approach is to make estimated tax payments. An individual who is an employee and receives a paycheck is all too familiar with payroll withholdings. However, there are other sources of income such as self-employment, interest, dividends or distributions, rent, capital income, or the sale of personal assets or property. By making estimated tax payments, an individual proactively pays tax on the amount of income he or she expects to make from such non-payroll income streams.
However, estimated taxes are not the same as actual taxes, so surprises may still be in store for taxpayers who opt for this approach. According to a recent article, this predicament may await some Obamacare enrollees. Those who paid for their coverage through subsidies — around 85 percent of total enrollees — may owe the Internal Revenue Service money if they underestimated their 2014 income. According to data from the Obama administration, the average monthly subsidy given to federal exchange enrollees was $264.
As a tax attorney knows, federal and state tax laws often change. A taxpayer may encounter problems if the IRS believes that he or she underreported income, failed to pay taxes, filed a late return or misused a deduction.
Even though there is an administrative process available for challenging many tax disputes, it is important to consult with a tax lawyer early in the process. An attorney can work to help taxpayers obtain the best outcome while exploring options such as an offer in compromise, payment plan, settlement or even litigation.
Source: CNN, “Obamacare tax surprise looming,” Tami Luhby, Jan. 2, 2015