Tax penalties can be daunting and confusing. When you are planning to file your tax returns, a lot of unforeseen problems may arise, which may delay the process of tax filing. So, to avoid a tax penalty, you need to be well-prepared and aware of the deadlines. In today’s fast-growing world, people work under pressure, and forgetting things is not new! Even forgot to pay taxes! You might miss your deadline to pay the taxes.
There is usually an IRS tax penalty in case you underestimate your quarterly payments. There are many reasons for charging penalties, but the main reason why tax penalties are basically charged on an individual includes not paying the amount owed to the tax department on time. Not paying sufficient tax during a financial year leads to heavy penalties. You can be saved from paying penalties if you –
* File your tax return on time.
* Always pay taxes that you owe timely and accurately.
* An accurate return should be prepared.
* Provide accurate information returns.
Whenever IRS charges you a penalty, a notice is sent to you via email. The notice of letter will tell you about the penalty, the reason for the charge and what to do next. These official letters include a unique identification number. Verify the number in your notice or letter whether is correct or not. Try to resolve the issue in your notice or letter as early as possible in order to avoid a penalty!
Also, Read: How to Move 401K to Gold Without Penalty
If you have to pay money to the tax department, make sure that all the due taxes are paid. In addition to that, you are required to file your federal tax return by April 15. In case you fail to file your federal tax, apply for an automatic extension. If that does not happen, you will have to pay a failure-to-file penalty which is around 25% of what you actually owed. The division is like this – when you do not file taxes for five months, you have to pay the tax owed ( 5% for every month), which makes it 25%.
If you are not able to pay the taxes by April 15, you will have to pay a failure-to-pay penalty, which is 25% of the amount that you owe. But this penalty’s nature is quite slow if compared to other late-filing penalties, i.e at just 0.5% per month for a total of fifty months. On top of that, interest will automatically get added to the past due amount.
Do you know you can be charged with a heavy penalty if you claim a false return? If you are caught filing a false return, you will have to pay a penalty of $5,000. If you are found involved in a scam or you are deliberately filing a false return, IRS has the right to charge criminal prosecution against you.
When you file taxes and willfully don’t mention or disclose any of your overseas accounts in the tax return, you could be charged with a penalty of 50% of your total balance or $100,000, whichever is higher, up to six years for every year for which you haven’t mentioned on your tax return sheet. Mention every detail whenever you file taxes!
There is also an interest if you fail to pay the penalties on time. The amount of interest will vary by the type of penalty. Interest increases the amount you already owe to the IRS until you pay your entire balance in full.
In case a person has not paid the whole payment owed on taxes, there are two options- you are either required to pay taxes that is 90% less than the present year’s tax liability or 100% of the previous year’s tax liability. Many choose the previous year’s option; as in the first case, the payment remains fixed.
Salaried employees can also claim compensation for an estimated tax. All you have to do is just simply raise your withholding there. Also, there is a law for married couples also. They will get an additional option – if the spouse is withheld, there will be a coverage of scarcity of estimated taxes. This will be due to the untaxed income of either of the spouse when they are filing the taxes together.
Another way to avoid tax penalties is to annualize your income. For that, one is required to file a form 2210 and then segregate the deductions and income estimated during the tax period. For instance, if someone receives a handsome and sizeable income at the end of the year, then that income will be counted for the fourth quarter. But when you annualize the income, it will confirm that during the first three quarters, the customer had annualized the right amount and is only required to pay the higher estimated amount in the final and fourth quarters.
To know your total penalties or what deductions should be included, in the easiest way, just give a call to FlyFin. They, as a team, provide complete details about the entire tax penalty process and how someone can avoid paying penalties. The services are available for business owners, executives, and independent professionals. So, if you haven’t filed your taxes and don’t want to pay any extra money to the tax department, file your taxes as soon as possible!