If there is one thing that can intimidate even the most imposing person, it is tax time. When it is time to file a tax return, almost everyone feels nervous, even if they are filling out the simplest of forms. As tax laws change almost every year, it is only natural to wonder if you are doing everything expected of you by Uncle Sam and the IRS. Therefore, it is always important to have a good understanding of the many legal aspects associated with taxes. To make sure you know all you need to come tax time, here are seven crucial concepts to understand about the legal side of taxes.
Everyone is Subject to Taxation
Like it or not, everyone is subject to being taxed on some level. Since the amount of taxes you pay is based on your income, it is often advantageous to work with a skilled tax professional to ensure you are using the tax laws to your advantage. By doing so, you will likely discover additional deductions or other ways in which you can keep more money in your pocket.
Taking Advantage of Tax Benefits
Since the U.S. tax system is voluntary, this means you have numerous options available as to how you arrange your financial affairs to take advantage of certain tax benefits. By minimizing the amount you owe by doing such things as contributing to a retirement account such as an IRA or 401(k), you can be rewarded for making smart decisions.
You are Responsible for Your Taxes
Even if you have a tax professional prepare your tax returns, you are ultimately responsible for all information provided to the IRS. Therefore, if you are to be the subject of an audit or other investigation, you will be held responsible for whatever may transpire. Because of this, never sign any tax form or related documents unless you are absolutely clear about all information contained in the paperwork.
Hiring a Tax Attorney
If you are the subject of an audit or other investigation related to your taxes, you have the right to legal representation at all hearings. In fact, it is highly recommended you obtain legal counsel as soon as possible upon being notified of an impending audit or investigation. By being proactive in these situations, you can allow your attorney enough time to examine evidence, interview individuals, and formulate a strategy to be used for your defense.
Don’t Miss Deadlines
Like anything else in life, there are deadlines associated with filing taxes and other related paperwork. If you do miss deadlines for filing taxes, chances are you will be paying more due to penalties and fines. Therefore, if your tax situation is complex, it is best to not procrastinate. In these situations, it is likely in your best interest to have a tax attorney working with you. Since the attorney will be aware of impending deadlines, there will be little chance of your tax returns or other paperwork arriving late to the IRS.
Penalties Can be Severe
If you fail to pay your fair share of taxes, or fail to pay your taxes at all, the IRS can impose a variety of severe penalties against you in an effort to collect what the agency has determined you owe. These penalties can include garnishing wages, placing liens on your home or other property, seizing bank accounts, tax refunds, and even Social Security payments, and in extreme cases bringing criminal charges against you, which could lead to significant jail or prison sentences.
Communication is Essential
Whether it is communication between you and your tax professional, tax attorney, or the IRS, communication in these instances is critical to ensuring any potential problems are resolved as quickly and easily as possible. For example, if you receive a letter from the IRS, do not simply put it aside and hope the problem will disappear. Instead, speak to a qualified tax professional or tax attorney as soon as possible, since this will allow you to have enough time to communicate with the IRS and others as to how you plan to proceed.