IRS Penalties for Every Tax Mistake & How to Avoid Them


IRS Penalties: What Mistakes to Avoid

irs penalties helpWhen you owe the IRS, you don't just owe a tax. A good bit of your tax debt is due to IRS penalties. There are more types of IRS penalties than most taxpayers know about. IRS penalties are used to not only collect a larger amount from taxpayers, but also to punish taxpayers for a number of "tax sins." This page will discuss the variety of IRS penalties and what you may be able to do about them.

IRS Penalties for Estimated Taxes

Anyone who has income that doesn't have anything automatically withheld must file and pay quarterly taxes. This usually relates to self-employed individuals and landlords, but applies to a long list of income sources. If you do not file and pay on time, you can expect IRS Penalties for Underpayment.

IRS Penalties for Filing or Paying Late

Failure to File IRS Penalties add on 5% every month that your tax return is late. It caps at 5 months. So, the most you can expect to be added on from filing late is 25%. If you need up to six more months to file, you can avoid these IRS penalties by filing an IRS extension before the April deadline. Failure to Pay IRS Penalties add on half a percent of your unpaid tax for every month your tax is not paid in full. There is no cap on Failure to Pay IRS Penalties. If you file for an IRS extension, you can avoid these IRS penalties by paying at least 90% of your tax liability before the April deadline and the rest with your filed return.

IRS Penalties for Substantial Understatement

An understatement is any time you report a lower tax on your return than the correct tax. If the difference is more than 10% or $5,000 on an individual tax return, that is considered a substantial understatement. For corporations, it is considered substantial if the understatement is the lesser of a 10% or $10,000,000 difference. To avoid these IRS penalties, you will need to provide a reasonable basis for the tax amount you entered. You must fill out and send a Form 8275 to do this.

IRS Penalties for Negligence and Disregard of IRS Law

If you fail to properly comply with tax law or you do not keep sufficient records, this is considered negligence. Disregard for tax law is when you exhibit indifference to or intentionally flout IRS tax law. The only way to avoid these IRS penalties is to prove this is not the case with your situation.

IRS Penalties for Civil Fraud

If you commit tax fraud, you can expect IRS penalties equaling 75% of your underpayment. Quite frankly, this will be the least of your worries. Tax fraud is incredibly serious, and you could be criminally prosecuted.

IRS Penalties for Frivolous Tax Returns & Bounced Checks

Make sure you send a complete tax return to the IRS, with enough information to accurately report a tax debt. Wasting time and resources at the IRS will give you $5,000 in IRS penalties. If you file jointly, your spouse can also expect $5,000 in IRS penalties. On that note, also make sure that you have enough money in the bank before you send a check to the IRS. Just as with any company you send checks to, you can expect IRS penalties for bounced checks. If you are having a difficult time fitting what you owe the IRS into your budget, consider an installment agreement.

If you need help removing IRS penalties, there are programs that can help! Consult a professional. Call now or fill out the form below for a free tax debt consultation to learn how to deal with your IRS penalties. We'll only connect you with a tax debt relief company holding at least a B rating with the Better Business Bureau.


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