How to not owe taxes and make money

The IRS has taxrs an increasing number of taxpayers subject to estimated tax penalties, which apply when someone underpays their taxes. The number of people who paid this penalty jumped from 7. The penalty amount koney, but can be several hundred dollars. The IRS urges taxpayers to check into their options to avoid these penalties. Adjusting withholding on their paychecks or the amount of their estimated tax payments can help prevent penalties. This is especially important for people in the sharing economy, those with more than one job and those with major changes in their life, like a recent marriage taxess a new child. Having enough tax withheld or making quarterly estimated tax payments during the year can help you avoid problems at tax time. Taxes are pay-as-you-go. This means that you need to pay most of your tax during the year, as you receive income, rather than paying at the end of the year.

How to avoid enforcement action

If you finish your tax return and are confused as to why you need to send the IRS a check, there is only one possible explanation for this: you paid less tax during the year than you owed for your income level. Watch this video to find out more about why you may owe money of your tax return. Beginning in , dependent exemptions are no longer taken as a deduction from your income. The reasons for this situation, however, can vary—but you can easily prevent this from happening next year if you get to the root of the problem. If you are employed by a company, the IRS requires your employer to withhold a portion of your salary to pay your federal taxes. The amount withheld depends on a number of factors—but you do have some control over how much is taken out of your paycheck. The W-4 form you filled out when you started your job allows you to modify how much tax is withheld from your paychecks. If you are unfamiliar with the W-4 form, you should understand how allowances work before making adjustments to it.

Do I have to pay taxes on money I make through my Acorns account?

Essentially, each allowance you report represents a reduction to your taxable income—such as for the dependent exemptions for tax years prior to you anticipate claiming on your tax return. The more allowances you report on your W-4, the less tax that is withheld from your paycheck. If you report more allowances on your W-4 than dependents on your tax return, you could end up writing a check to the IRS come tax time. This is just one example. Self-employed taxpayers, though not subject to withholding, can face similar issues when they fail to make estimated tax payments. As a self-employed taxpayer, you have an obligation to make up to four of these estimated tax payments to the IRS throughout the year.

Here’s how to fine-tune your W-4 and avoid writing a fat check next year

Are you wondering why you owe so much in taxes this year? Want to make sure you never owe a big tax bill — or any bill at all — when you file your income taxes? There must be something about the IRS that inspires fear and dread in the hearts of taxpayers. There are many reasons why you may owe taxes. Here are the five most common reasons why people owe taxes. You can give yourself a raise just by changing your Form W-4 with your employer. However, if you do that without careful planning, you might be setting yourself up for an unpleasant year-end surprise.

There’s no need to panic if you can’t pay your tax bill

Obviously, most people do have to file. But if your gross income was low enough last year, you may be off the hook. How low is low enough? See the gross income maximums in the table below which depend on your age and marital status as of Dec. Gross income basically means potentially taxable income from all sources, including income from outside the U. However, if you received Social Security benefits, you will need to do a separate calculation using the worksheet provided in the Form instructions to see if any of your benefits are taxable. If they are, you generally must file a return. If your spouse died in or , and you had at least one dependent child during , you can file as a qualifying widow or widower for

Also included with TurboTax Free Edition after filing your tax return. For the Full Service product, the tax expert will sign your return as preparer. Regardless of whether you are due a refund or owe, there is another point to keep in mind: If you never file your return, there is no limit on how many years the IRS can go back to assess and collect tax. Can I pay my tax in installments over time? About 2. However, if you work a full-time job and have cash side-income, you’ll want to make sure you either withhold additional money from your primary paycheck to compensate for the added income, or you’ll want to look into quarterly estimated tax payments more on this later. Turn your charitable donations into big deductions. Administrative services may be provided by assistants to the tax expert. Prices are subject to change without notice. Those in the lowest bracket may not have to pay any taxes. If you filed an extension by April 15, tax year deadline , it buys you an extra six months, pushing your filing deadline to October 15, Enter your annual expenses to estimate your tax savings. For example, if you work multiple jobs, you should make sure to claim zero allowances at your second job, or you may wind up overpaying on your taxes. If your issue is that you find yourself owing too much money when you file your taxes, make sure you’re claiming all of your deductions.

2. Minimize Penalties and Interest

Also included with TurboTax Free Edition after filing your tax return. How long is my extension good for? If you find yourself in this situation, you have a few yaxes available, such as: credit card payments installment agreements «offers in compromise» You can also simply file your return and wait for the IRS to bill you, but don’t be surprised if the bill includes interest and penalties. This is provided for informational purposes. If you’re severely underpaying your taxes, it may be time to take fewer allowances. Some tax elections must be made by the due date, even if you have a refund coming. Savings and price comparisons based on anticipated price increase. Even if you don’t enclose a check for the balance due, sending in your return protects you from the late-filing penalty that otherwise would keep digging you deeper into a hole. Terms and conditions may vary and are subject to change without notice. In the past, before the IRS would okay an installment plan, the agency demanded a look at your finances—your assets, liabilities, cash taces and so on—so it could decide how much you could afford to pay.

4 things to consider if you’re unable to pay a tax bill

I have plenty taken out of my paycheck. When I ask my coworkers how they have their deductions set up, they tell me to just change it so I get a big refund, but I’m not interested in giving Uncle Sam an interest-free loan. How do I set it up so I break even every year? Dear Mo Money, We completely understand how you feel. Sometimes it’s as though doing your taxes is a crap-shoot, and you never know whether you’ll owe money or get a refund until you actually do the paperwork, and it doesn’t have to be that way.

There are a couple of ways to go about this, from changes you can make to your W-4 with your employer, to some more drastic methods that will make sure you neither owe or receive money when you file every year—or at least come as close to even as you can. Let’s walk through them one at a time. The first place to check to make sure you’re not underpaying or overpaying on your taxes is the W-4 you have filed with your employer.

The rule generally goes that the fewer allowances you claim, the more money will be withheld—or taken out of—your paycheck and sent to the IRS towards your taxes. If you find that you’re paying way too much in taxes and get a huge refund every year, you may want to update your W-4 to claim an allowance or two. If you’re severely underpaying your taxes, it may be time to take fewer allowances. Keep in mind that claiming «exempt» isn’t the same as taking no exemptions—»exempt» only applies to people whose taxable income is below the taxable level.

While it’s true that for most people, claiming 1 or 0 allowances will result in a tax refund and claiming 2 or more will result in either breaking even or owing no how to not owe taxes and make money at all, the truth is a bit more complicated and depends on your situation. Photo by Lane V. Erickson Shutterstock. For example, if you work multiple jobs, you should make sure to claim zero allowances at your second job, or you may wind up overpaying on your taxes. However, if you work a full-time job and have cash side-income, you’ll want to make sure you either withhold additional money from your primary paycheck to compensate for the added income, or you’ll want to look into quarterly estimated tax payments more on this later.

There’s a guide to adjusting your tax withholding at About. For most people, the first step is to take a look at the W-4 you have on file, and if you wind up getting too much back, adding an allowance or two, and if you wind up paying too much, reducing your allowances or telling your employer you’d like an extra dollar amount withheld for taxes.

If your issue is that you find yourself owing too much money when you file your taxes, make sure you’re claiming all of your deductions. You may be surprised the number of things you can legitimately claim on your taxes, especially if you have a side business, do some freelancing, or run a business out of your own home.

We’ve mentioned some of them in the pastbut also pointed out that you shouldn’t get caught up in them especially if you’re spending money just to make a deduction. Still, keep close eye on your business expenses, and your personal expenses that can be attributed to your job and money you’ve spent that turned out to be more for your work than for. Also don’t forget to deduct your charitable donations—even that pile of old gadgets and gear in your garage or that stack of old books that you donated to Goodwill qualifies as a tax deduction.

Photo by Alan Cleaver. If the ambiguity of a change here or there doesn’t console you much, it’s time to talk to a professional. Most of the easy adjustments are trial and error. Tweak, see how it changes things, wait for next year to see if you break even—it’s a little hit or miss. If you want more precision, you can do the W-4 worksheet and a projected tax payment to see how your taxes for next year will shape up based on your change, but the paperwork can be confusing, and there’s no guarantee you did it correctly.

We’ve discussed how you can find a good tax professional. If your finances are complex and you’re staring some uncomfortable numbers in the face, it’s time to find someone who can help you at least make sense of.

An accountant or other tax professional can at least help you understand them and make changes so next year looks better. Photo by Michael Gil. If your problem is that you get huge refunds back every year, this won’t apply to you, but if you wind up paying when you file and would rather not, you have two options.

First, you can withhold additional funds every pay period for taxes, like we mentioned above, and second, you can look into making estimated tax payments every quarter so you don’t owe a large sum when you file your return every year. For most people, estimated taxes are only worth paying if you have income that’s not subject to withholding—like anything you would see on a MISC at the end of the year, or cash income you get from selling your own goods or working on side jobs.

The IRS’s guide to estimated tax payments explains the process of filing a ES to make your payment. We would suggest, however, that if you’re going to go this route, it’s time to hire a good tax professional to help you out—paying estimated taxes on a regular basis can get tricky—not because it’s not repeatable, but because it doesn’t mean you don’t have to file an annual return, and it makes that annual return more complicated and can put you in the position where you’re getting refunds instead of breaking.

For most people, adjusting the allowances they have will do the trick. If you find you already have zero allowances and still owe money, you’re getting income from somewhere that’s not being taxed, and your best bets are additional withholding or estimated taxes.

If your allowances are high and you’re still getting a refund, something else is up and you may be taking too many deductions or not reporting some income. Either way, if you make some incremental changes and they don’t work out the way you expect, or you’re just daunted by the whole process the best thing to do is get some help from a qualified professional.

It may cost you some money in the short term, but you’ll be much happier in the long run. Do you have any additional tips for Mo Money? Are you a tax professional with experience here to share? Let’s hear it in the comments. Have a question or suggestion for Ask Lifehacker? Title photo by Arvind Balaraman Shutterstock. The A. Alan Henry. Filed to: Ask Lifehacker. Share This Story. Get our newsletter Subscribe.

How to (LEGALLY) Pay $0 In Taxes — Why The Rich Don’t Pay Taxes?

It’s a calming thought: owing nothing on your federal tax return. And you can make it happen if you handle your withholding strategically. Here’s. The W-4 form that you fill out for your employer when you start a new job determines how much income tax will be withheld from your paycheck and, ultimately, how much tax you will either owe or get back as a refund at the end of the year.

The reality of being hit with a surprise tax bill

What you may not know is that it’s not a one-time thing. You can submit a revised W-4 form to your employer taes you want. Managing how much your employer withholds through your W-4 form will oqe you a better shot at owing no taxes come April.