Proper tax planning and preparation can help you avoid some of the most common IRS penalties. We, at Pransform not only help you stay on top of your tax planning, but also provides you an expert virtual team to take care of all your tax preparation.
Here’s a Run-Down of the 5 most common IRS penalties:
Failure to file: One of the most common penalties is the failure to file and submit a return on your balance for a tax year. This is one of the most detrimental penalties that can be given to taxpayers and it means you would have to meet with a penalty of 5% of the balance that has been overdue for each month. The max is at 25% according to IRS.
Failure to pay balance: This is penalty that you incur if you do not pay what you owe to the IRS and you are penalized on the balance for every month that you’re late and the penalty is of 0.5%. There is also a compound interest that is put on the total balance you owe.
Underpaying the tax: This is a penalty that ranges from 0.0008% to 2.3% on the tax total, which is the estimated tax that you fail to fully pay for the tax year it is owed in. This however is a penalty that can be avoided if you come clean to the IRS about why you underpaid the tax obligation.
Making deduction mistakes: If you fail to keep record that can help you avoid incurring more tax, you are penalized. A penalty of 25% is assessed. So proof is important if you want to prevent deduction mistakes.
Tax fraud penalty: This is again a very damaging penalty that IRS charges you with if they come to the conclusion that your financial reports show income lower than it actually is and if you filed taxes with an intention of committing fraud. The penalty is of 75% on the amount that is underpaid.
How to avoid these penalties?
These penalties can be avoided if you pay your taxes properly each year and file the taxes according to tax code. The tax filing should be done on time, you should pay exactly what you owe and be aware of when you’re filing your return. If you file on time and avoid any errors on the return balance, you can save yourself from incurring penalties. You can also avoid IRS penalties by asking them for an extension on filing and paying your taxes. The reasons you can present in order to get approval can include the following:
- You need more time to generate a proper income statement that shows exact income
- There are mistakes on your records that need amendments
- You’re away and aren’t able to meet the deadline for filing the taxes