Hi, I’m Bette Hochberger, CPA, CGMA. Today is the deadline to file your 2022 income tax returns! If you cannot file your return, make sure to submit an extension form to the IRS so that you can avoid penalties. So for today’s quickie, I will discuss some of the common IRS penalties when it comes to filing taxes and how to avoid them.
A penalty is a charge made by the IRS on an individual or organization that doesn’t meet tax obligations. For example, late payments, incorrect payments, or missing information on your tax return are considered penalties. A penalty can also result in an audit when a mistake is found on your tax return.
The IRS always sends a written notice in the mail explaining the reason for the penalty, the amount you owe, and what steps you need to take next. But wait, before you take any action, make sure to check that the information provided is correct. Yes, even the IRS can make mistakes sometimes!
Information Return Penalties
The IRS imposes this type of penalty for failing to provide accurate and timely information returns, such as Forms W-2, 1099, or 1095 to the government, payees, or both. The penalty amount can vary depending on the type of return, the number of returns, and the severity of the violation. Ensuring that all payee statements and returns are accurately and completely filled out well before the deadline is crucial to prevent an information return penalty.
Failure-to-file Penalties
A failure-to-file penalty is a penalty imposed by IRS on taxpayers who fail to file their tax returns by the due date or by any extensions granted. This penalty can apply to all types of tax returns, including individual income, business, and information returns. This penalty is based on how late your tax return is filed and the amount of unpaid taxes at the time of the original due date. You can avoid this penalty by submitting your tax return or filing an extension by the tax deadline.
Failure-to-pay Penalties
If the IRS finds that the reported tax on your return is not paid by the deadline, you’ll be penalized for late payment. The amount you owe to the IRS is based on how long your overdue taxes remain unpaid. The longer you wait to pay, the more your penalty will be. So make sure your taxes are paid by the deadline. Even if you filed an extension, you still have to pay taxes on or before the tax deadline.
Accuracy-related Penalties
These penalties are charged when you make incorrect or missed claims on your tax return. So, if you forget to report a portion of your income or claim deductions and credits you’re not entitled to, you could be in trouble and face penalties for your inaccurate claims. If you’re hit with an accuracy-related penalty, you could owe up to 20 percent of the underpaid tax amount due to inaccurate reporting on your tax return. So, make sure to double-check all your claims before submitting your tax return to the IRS!
Failure-to-deposit Penalties
The IRS imposes this penalty on employers who fail to deposit federal employment taxes on time or in the correct amount. The penalty amount depends on the delay period, underpayment, and compliance history. To avoid a penalty for failing to deposit employment tax, you can get familiar with schedules, due dates, and forms to help you file on time.
Underpayment of Estimated Tax
This penalty applies to individuals or corporations who fail to pay their estimated tax payments in full or on time, even if you expect a refund from the IRS. The penalty amount is calculated based on the difference between what you owe and what you paid by the payment due date, along with the applicable interest rate. You can avoid this by utilizing electronic funds transfer for tax return payments, taking some time to calculate your taxes, and applying for a faster refund when you overpay your tax.
I hope you learned something new today. Getting penalties from the IRS is the worst, so to make things easier, tax planning might be the best option for you. If you want to talk more about your tax planning, click here to schedule a meeting with me.
As always, stay safe, and I will see you next time.
