Many people leave their jobs to work for themselves by starting a business or becoming freelancers or independent contractors. Although someone’s employment status may change, obligations to pay federal income tax do not go away. Self-employed Texas professionals may need to familiarize themselves with tax requirements, or else they may end up paying costly penalties.
Different requirements for the self-employed
Since a self-employed person does not receive a traditional paycheck, withholding is not taken out. So, the person must make timely quarterly estimated tax payments. Failing to do so would result in an estimated tax penalty due when filing a return.
Improperly calculating an eventual tax obligation for the year may lead to a balance due, which would not accrue penalties and interest if paid off by April 15th. Those who file an extension would only avoid penalties and interest if they paid the amount owed by the original tax due date.
Avoiding debts owed to the IRS
Failing to file a return or pay any taxes could lead to more problems than owing the original tax debt. The taxpayer may end up paying interest, along with failure to pay and failure to file penalties. Some non-filers might have to endure a criminal investigation.
While most taxpayers will do their best to file on time and pay what they owe, they might not take all the valid deductions allowable under the law. Failing to do so would likely result in a higher tax balance.
Good accounting and tax compliance practices may keep someone from dealing with tax debt hassles. Still, a taxpayer might end up owing a balance he or she cannot pay. Options exist, including extension, installment agreements, and even offers in compromise deals. Exploring such options could help someone dealing with tax debt issues.