Should you have any tax penalty for any reason and regardless of who prepares the tax return (even if self-prepared) you can still request a one time penalty abatement yourself. A penalty abatement is a simple request to remove or refund all penalties for a given tax year. This abatement is available once every four years, so hopefully you do not have greater penalties accruing for 2023. Once 2022 is all filed, you can discuss this process with the IRS and see if they can waive anything over the phone or if a signed letter is required. A signed letter asks for a “one time penalty abatement” for a given tax year, includes your taxpayer info (social, address, etc.) and has the signature of both the first and second taxpayer to appear on the tax return.
We may need to compute whether you have an exception to pay tax 4/15 of the following year or if quarterly payments are required.
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The general rule is that tax is due as income is earned to avoid penalties. A federal exemption can be achieved if withholding and estimated taxes are at least 90% of the tax for the current year or 110% of the tax shown on the return for the prior year, whichever is smaller. Allow us to assist, but if interested in the IRS rules they are linked below.
An IRS one-time abatement request needs to be mailed out to the address the tax return would normally be filed to. See the following link which shows where your tax return would be filed based on your state.
California generally wants taxes as income is earned or even earlier, especially with household incomes over $500,000. There can be some exceptions depending on the prior year wage withholding, if any. Allow us to assist, but if interested in the CA rules they are linked below.
To try and explain these rules a bit further we offer you some ideas
In summary, you cannot simply wait until April 15th every year to pay your taxes. Almost everyone would do that if they could without a cost. When possible we project out so that people know how much they owe and when payments are required. Sometimes payments may be pushed out without penalty in which case you can pay later. This allows you the time value of money, or in other words, earn some interest if you can.
Here are some circumstances which are warning signs regarding the important of estimates:
Self-employed individuals, particularly in CA accrue a tax liability faster than most imagine. Adding to the challenge is that if payments are not made the liability and penalties can add up even faster when behind on taxes and bookkeeping.
Years of similar or declining income as compared to the last tax year
Similar or declining income could warrant payments to avoid penalties.
Money is tight or you are planning a big purchase
Some decide to just figure out taxes later and take some penalty in the cases where money due is not material. Often though if money is tight then the important of knowing how much tax you owe and when to pay it is more important.
High income or years of change
High income can result in high penalties or increase the value should you be afforded an exceptional postponement. Years of change such as moving states, jobs, big purchases, etc… warrant planning.
See the attached normal penalty abatement request template. The yellow highlights are the information that needs to be updated by the taxpayer.