With the 2020 tax season fast approaching, it’s time for individuals and business owners to start doing their research about tax filing requirements for the year. While there’s still a decent amount of time left and you won’t actually have to start handling taxes until next March-April, it’s best to know what you’ll be up against in terms of how much money you should set aside and which deductions you should be filing.
Failure to heed that fundamental advice could lead to you encountering one of the three most common tax problems that businesses and individuals are likely to face in 2020:
1. State Tax Liens
If you owe the states enough taxes, you could be subject to a state tax lien, in which a legal claim against your assets would be in effect. Depending on how much you owe, the state can seize your bank accounts, properties, vehicles, and other assets to recoup the amount that you owe. A state tax lien can also have a very detrimental impact on your ability to obtaining financing and funding in the future because it shows up in your credit report and negatively affects your FICO score.
2. Late Filing
Late filing will continue to be one of the most common tax problems that cause penalties, fees, audits, and other inconvenient consequences. Unfortunately, about 20% of the population files their taxes late, and that trend is expected to continue in 2020. Knowing when you’re supposed to file and taking steps to prepare in advance will ensure that you’re not looking for rush tax relief at the last minute or struggling to catch up months later. Getting into a routine system of filing on specific dates will help to make the process feel less burdensome in the long-term.
3. Underestimating Tax Liability
Underpaying your taxes can lead to an audit and penalties being applied to your liability for the next tax year. Since tax liability varies depending on your income bracket and employment or business, it’s important to discuss this issue with a professional so you can determine what percentage of your revenue you should aside in a tax account.
As a general rule of thumb to make sure you’re not underpaying, try to save at least 22-25 percent of every paycheck, invoice, or other payment you receive. If you wind up overpaying, that could actually be good because you’ll get it all back in a lump sum during tax return season.
Consult with a Pro and Be Thorough
Engaging in at least one tax consultation is always a good idea, even if you feel like you’ve done enough research to handle your filing duties independently. Going over your business model or sources of income with an advisor and asking for tips and advice on how you can avoid problems and maximize deductions will help you not only avoid negative consequences, but it will also help you get the most out of any potential tax returns or forms of relief that you may be eligible to receive.
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