Each time you earn income, the IRS will require you to state it as part of your income. At the end of the year, you add to your total income and declare this amount on your tax return the IRS.
Payments of tax withheld
If you work for an employer, then your employer usually withholds tax from your gross salary before you receive the net figure and then paid to the IRS. You might also find that income tax is also withheld from several other types of income you receive, like pensions or unemployment payments.
Every time you complete your IRS tax return, the amount of gross earning you receive reveals the amount of tax you need to pay to the IRS. It is possible for some people to reduce the amount of gross earning that is reported on your tax return to the IRS by claiming deductions for expenses related to work each year.
Estimated Tax Payments
Freelancers do not have tax withheld from their income payments. They receive their money directly from customers or clients and are required to pay estimated tax payments.
This may be difficult for many self-employed since the amount they earn may vary widely from month to month, based on sales or sales volume.
Insufficient Withheld Tax Payments
When you fill out your IRS tax return, you’ll be asked to add up the total amount of withheld tax payments that were paid to the IRS on your behalf by an employer, or that you paid through estimated tax payments throughout the year.
If the amount of tax paid is not enough to account for income you have reported, then you will receive a tax bill to offset the shortfall, called a tax penalty.
Avoiding a Tax Penalty
In fact, there are some things you can do throughout the financial year to reduce your chance of receiving a tax penalty. You can ask your employer to take a little extra tax from your salary through the year or you can make voluntary payments to the IRS through the year.
Lodging Your IRS Tax Return
Although it is possible to file your IRS tax return yourself using the secure online system, you may prefer to pay a tax agent to prepare your return for you.
The benefits of paying a professional to help you can mean finding more tax deductions to help reduce your taxable income further than you could on your own.
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