Tax preparation can seem daunting and confusing. You may feel like you already have a lot of information to sort through, along with the fear that you might make a mistake. Though tax oversights can happen, it’s important to understand how you can avoid being penalized. Take a look at some of the most common tax penalties and how to prevent them from creeping up on you.
It’s easy to miscalculate on a return or overlook certain things, which is why underpayment penalties are most common. In many cases, these penalties are minor and you will have a chance to pay what you owe without an additional penalty. In other situations, a larger penalty may be assessed.
Failure to File
If you don’t file your taxes before the filing deadline—or even worse, not at all—then you will incur the failure-to-file tax penalty. If you have an outstanding tax balance, five percent of the balance due will be assessed as a penalty every month until the full amount is paid.
If you think you might miss the tax deadline, file an extension. There are many circumstances where the IRS will allow an extension, so take advantage of it to avoid owing additional penalties with late filing.
Failure to Pay
If you file your taxes but don’t pay on time, you will be assessed a failure-to-pay penalty of a half percent of the unpaid balance per month. If you are experiencing certain extreme hardships, the penalty could be waived if you go through the proper channels.
If you make a mistake or omission (especially underreporting income or overstating the value of charitable contributions), the IRS will have to adjust your return. If a tax increase is a result, you may have to pay an accuracy-related penalty between 20-40 percent of the total tax increase.
Judicial Relief of Civil Penalties
Underpayment and accuracy-related tax penalties will not result in any jail time or asset seizure unless you refuse to pay your tax bill over a long period of time. Some tax penalties could be waived by a judge, but only in special situations.
Tax mistakes can happen, but even a minor mistake can incur some type of tax penalty from the IRS. Our professional tax advisors at Ferguson, Timar & Company can help you avoid these common mistakes or help you navigate through a sticky tax situation to achieve the best possible outcome. Contact Ferguson, Timar & Company today for a tax consultation.