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Guest Post: 4 Tax Penalties Every Taxpayer Should be Aware of
Being aware of the various tax penalties the IRS could impose will help you avoid them. Here are four tax penalties every taxpayer should be aware of and avoid:
Failure to File Penalty
The Failure to File Penalty is imposed on taxpayers who do not file their tax return or request a tax filing deadline by the due date of April 15th. If you are unable to complete your return before the deadline, make sure you request an extension which will give you until October 15th to file. If an extension is granted, and you still do not file your taxes by the new deadline, you will be charged a Failure to File Penalty which is 5% of the total amount of tax liability per month for a maximum of 25% of your total tax liability.
If it is found that you didn’t file your taxes for fraudulent or negligent reasons, your fine can be increased as much as 75% of your original, total tax liability.
Avoid having to pay this penalty simply by submitting your tax return on time.
Failure to Pay Penalty
The Failure to Pay Penalty is calculated from the original payment deadline of April 15th, and is .5% per month for each month you don’t pay your owed taxes in their entirety. This penalty can exceed 25% of the unpaid balance on your taxes.
This penalty is in addition to the interest rate charged to taxes owed. The average IRS interest rate for underpayment of tax liabilities is around 4% currently, but the rate changes every three months.
Avoid the Failure to Pay Penalty by paying your taxes by the due date. If you cannot pay your total tax liabilities in full, then it is best to pay what you can in order to reduce the failure to pay penalty.
Accuracy Penalty
If the IRS finds that your tax return is inaccurate, there will be accuracy penalties and interest imposed. If the mistakes do not appear to be intentional, the accuracy penalty is normally 20% of the total understatement of tax. If the mistakes appear to be fraudulent or there were gross valuation misstatements, the penalty may be as much as 40%.
If you believe the penalty you receive for inaccurate information on your tax return is due to inaccurate advice you received from an IRS employee, you may be able to file a penalty abatement and have the penalty removed.
There are some other situations which may result in the removal of the penalty as well, and a tax professional can assist you with determining if your reason for the inaccurate information would be considered with reasonable cause or a valid excuse.
You can avoid the Accuracy Penalty by checking your tax return carefully to ensure everything on it is correct. Use the assistance of tax professionals if you need help filing your tax return.
Tax Fraud Penalty
If you have underpaid taxes owed due to fraud, you will receive a tax fraud penalty of 75% of the underpayment. The IRS will examine each return with a tax underpayment to determine whether or not there is evidence of fraud. Negligence, or not understanding tax laws is not considered fraud. You can avoid a tax fraud penalty by completing your tax return with accurate information, and following IRS rules.
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5 Responses to “Guest Post: 4 Tax Penalties Every Taxpayer Should be Aware of”
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In the UK we don’t have many of these penalties and instead if a tax retrun is wildly inaccurate then you would face criminal proceedings for fraud
Thanks for a nice, informative article. Newer knew that you can get 40% penalty just for making a mistake
I couldn’t agree more. It is better to file ontime and be accurate than chance being audited and have to pay all of those penalties. The IRS is ruthless.
.-= Tax Preparation services´s last blog ..Determining Filing Status =-.
Penaility are the way by the government to tell the people that they have done something wrong therfore people should try to avoid it and do things which wont cost them this xtra money
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