Changes to tax laws have left many Americans unsure about their own tax liability. Taxpayers with complex assets typically face a more complicated filing process, but this year’s filing season may be even more confusing with new rules in place. Without help from experienced professionals, it is possible that many people will make mistakes on their tax returns. Fortunately, confused taxpayers are getting a break this year.
The Treasury Department has said that it will not penalize taxpayers who accidentally underpay their 2018 taxes – up to a certain amount. If you miscalculate your tax liability, then you will not be hit with penalties as long as you paid 85 percent of what you owe through withholding or estimated quarterly payments.
Who is affected by changing tax laws?
With the Tax Cuts and Jobs Act of 2017, tax codes were drastically adjusted. You may be affected by changes if you were on the edge of a tax bracket, if you pay or receive alimony, if you have children and even if you are married. With so many changes, it is possible that some taxpayers may underpay, resulting in fines. Consider just some of the following changes:
- Divorced individuals may face higher taxes
- Alimony is no longer deductible on the payer’s tax return and recipients cannot include it on their returns
- Itemized deductions have been cut
In some cases, changes may reduce your tax liability. Married couples receive a much larger deduction at $24,000. Also, due to itemized deduction limitations, many taxpayers will no longer need to pay the alternative minimum tax. Income levels that trigger alternative minimum tax have also been raised.
Taking measures after noticing a tax error
As discussed in a previous blog post, there are steps you can take if you discover a mistake on your tax return before the IRS does. You can file an amended tax return (Form 1040X), allowing you to correct information. You will need to explain the errors and pay any additional liability that you owe. Fortunately, you have up two years after the original filing date or 36 months after the original deadline to submit an amended return. You may be surprised to know that the IRS can go back three or sometimes six years to fine you if you underpay on your return.
While mistakes can happen, it is in your best interest to file correctly the first time. Errors can result in penalties and even criminal consequences. A tax professional can keep you one step ahead of tax issues.