IRS Penalties apply for failures to file income tax or information returns or filing incorrect returns. Some penalties may be very minor. Penalties apply for certain types of errors on tax returns, and may be substantial. Some penalties are imposed as excise taxes on particular transactions. Certain other penalties apply for other types of failures. Willful failures generally carry much higher penalty, which may include jail. In addition, certain criminal acts may result in forfeiture of property of the taxpayer.
Responsible Reporting and Paying Income Taxes
The United States, the law assumes that most taxpayers are honest, upstanding people. It is the responsibility of each taxpayer to accurately report and pay their appropriate taxes. Paying taxes can be complicated, and sometimes, things don't always go according to plan. Those who provide misleading tax information, underpay their taxes, and simply refuse to pay taxes altogether. Not paying the taxes by accident, or committing the crime of tax fraud, the Internal Revenue Service (IRS) has a variety of penalties to punish those who do not comply with the federal tax code. In this article, we will examine some of the most common penalties, which can be avoided by paying your taxes properly.
Under estimating IRS Penality
The first and perhaps most common IRS penalty is the under- estimate penalties. These penalties apply to taxes, which are withheld throughout the year and sometimes quarterly. Not only does the government count on the tax revenue, it also gains from the time value of the early collections paid throughout the year. At the end of a given year, if too little money was withheld for taxes, a penalty will be imposed to make up for the lost time-value of the unpaid amount.
Late Filing and Paying IRS Penality
The second most common type of IRS penalty has to do with income tax returns, which are filed and paid late. The penalty for late income taxes is equal to five percent of the unpaid tax amount per month the return is late. The amount of this penalty is capped at a maximum of 25% of the total tax amount due. For example, if Jill owes $1000 in taxes, which are
three months late, she owes an additional late penalty of $150. After 5 months, Jill would owe $250 in penalties. After 6 months, the late penalty is still $250, in accordance with the 25% maximum penalty.
False Reporting Penalities
The third most common types of penalty awarded by the IRS are penalties, which are accuracy related. Sometimes, the amounts reported on tax returns are found to be false, and are adjusted by the IRS. When this happens, and the IRS adjustment results in a tax increase, additional penalties often apply. These penalties can be up to 40% of the resulting
tax increase; however, they are applied on a case-by-case basis. In some instances, these penalties may even be waived entirely.
IRS Compliance Weapon
Penalties are one of Uncle Sam's most powerful compliance weapons. Most duties imposed under our federal tax laws are enforced by penalties. The Internal Revenue Service (IRS) assesses penalties for failing to file a return, understating one's tax liability, failing to pay tax when due and failing to report required information.
Avoiding IRS Penalities
Every year, these three IRS penalties cost American taxpayers millions of dollars. The best way to prevent facing these IRS penalties is to have an experienced income tax professional help with the preparation of your business and personal income taxes.