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JK Harris Gives 4 Reasons People Get Into Trouble With IRS
As the nation's largest tax resolution firm, JK Harris & Company, LLC, sees a multitude of ways people end up in hot water with the Internal Revenue Service.
JK Harris officials say that you don't want to mess with the IRS, either. One small mix-up when handling your finances can cost you money. For example, in recent years, the IRS has increased its filing of levies, liens and wage garnishments. In fact, in 2004 alone, approximately 2.5 million levies were filed.
Charlie Jones, a 30-year veteran of the IRS and now a Senior Technical Advisor for JK Harris, says "The IRS is a powerful law enforcement agency. Most enforcement actions concerning collection of taxes can be done without judicial review. The IRS' power can make life very uncomfortable for someone who owes it money."
The staff at JK Harris, which consists of former IRS agents, attorneys, CPAs and Enrolled Agents, offers this list of common ways people get into trouble with the IRS.
(1) Filing too many exemptions. An exemption gives you a major tax deduction, and some taxpayers can't resist the temptation to report more exemptions than they're entitled. You can only claim exemptions for yourself, a spouse and for all "dependents." Dependents have to meet specific criteria, however, so JK Harris says to make sure you follow the IRS guidelines so that you don't mistakenly file an extra exemption.
(2) Being unaware of taxes levied for early withdrawal from certain retirement plans. If you withdraw from a retirement fund such as a 401(k) or IRA before you're 59 1/2, you may face a 10 percent federal penalty on your investments, as well as a state penalty and an income tax on the money withdrawn.
(3) Not paying enough taxes when self-employed. Many people who own their own businesses don't know how much they have to pay in taxes. The tax structure for a self-employed person - what to pay, how to pay and what can be deducted - is decidedly complex, so it's easy to become confused.
(4) Not paying taxes on winnings. It is necessary to report all gambling winnings, including winnings from lotteries, casinos and horse races, as income.
To ensure that they have mistake-free tax returns, some people hire a professional to handle their tax matters. JK Harris, for example, helps people with personal finance issues or small business needs.