For most people, filing taxes carries enough headaches without worrying about penalties and fines from the IRS. Here is a recap of some of the most common IRS penalties and fines.
Late Tax Payment Penalty: If you owe a balance due on your taxes and don’t pay by midnight on the due date, the IRS will assess a Late Tax Payment Penalty. The outstanding balance will also accrue compounded interest. The best way to avoid the Late Tax Payment penalty is to file an extension if you feel you need more time to file your return or to save toward your balance due.
Underpayment Penalty for Estimated Tax: If you are self-employed and fail to pay enough toward your estimated tax due, the IRS will assess the Underpayment Penalty for your estimated taxes. The 1040 ES instruction booklet has a worksheet that you can use to calculate your estimated taxes due. A licensed tax advisor will also be able to help you calculate the correct amount.
Charitable Organization: If you run a charitable organization, your organization’s tax-exempt status is open to IRS scrutiny at any time. If the IRS determines that your organization is engaging in profitable transactions, they will revoke your charity’s non-exempt status and impose a fine.
Failure to File: The IRS will assess this penalty if you file your taxes late or not at all. You can avoid this assessment altogether by filing an extension; you will have an additional six months to gather your paperwork and tax forms. Be sure to file the extension before the April 15th tax deadline.
Incorrect Reporting or Fraud: This offense carries the most severe penalty: as high as 75 percent if the IRS is able to determine that you attempted to submit fraudulent information. Additionally, there are penalties if you failed to report taxable income or if you exaggerated an expense deduction.
If you’re concerned that your tax filing scenario will put you in the line of IRS fire, consult a knowledgeable tax advisor. He or she will able able to assess your situation, advise you of your options, and can represent you before the IRS should the IRS assess a tax penalty or fine.
You can lessen your chances of being hit with an IRS penalty by filing accurate and truthful tax returns, filing on time, and requesting an extension if you are not able to meet the April 15th tax deadline. Doing so will reduce your chances of facing IRS fines and penalties.