Taxation is a very important aspect of the functioning of civilized society. In that sense, the IRS performs a very significant duty. However, not every taxpayer is perfect in paying their taxes. There are several faults that occur - accidentally, intentionally or out of ignorance - when people file their returns. When this happens, the IRS has no other option but to impose penalties on errant taxpayers. It is important for taxpayers to know about these IRS penalties, because some of them can be quite stiff and really burn a big hole in their pockets.
Here are some of the most popular reasons why taxpayers end up paying penalties to the IRS.
-Late Filing of Returns - Most taxpayers have to pay fines for filing in their returns late. There is always a fixed date for filing of returns, and it is mandatory to file within that date. Even a delay of one day after that would attract the IRS penalty for late filing. Depending on how late your filing has been done, you might end up paying 5 to 25% of the total amount as a penalty for interest.
-Late Tax Payment - Some taxpayers defer on paying the taxes even after they have filed their returns. Paying the dues late also attracts penalties. The penalties here are not that high - you will have to pay 0.5 to 1% of the total tax amount as interest. But it is a penalty that can be easily avoided by making payments on time.
-Underpaying - IRS has laid down specific rules to show incomes and to calculate taxes on that. If you do not adhere to those guidelines and pay lower than the total amount due to you, then there will be penalties to pay if the underpayment is discovered. IRS has good enough means to find out underpaying, and in its viewpoint, this is an inexcusable offence. Penalties are quite high. You might end up paying 20% interest.
-Over-evaluating Taxes - Even over-evaluating the taxable amounts can attract a heavy penalty. You might have to pay as much as 20 to 40% percent in interest depending on the amount you have over-evaluated. That is why it is necessary to show the right amount of earnings within the accounting year.
-Hiding Property and Gift Taxes - IRS has its own means of finding out about the amounts of gifts you have been given in the whole year, and the gifts you have given to other people too. If you have received a gift (especially monetary gifts), then you have to show that when filing returns and pay the due taxes on it. Similarly, you have to pay due taxes on whatever properties you might have. Hiding these amounts could mean penalties of about 20 to 40%.
-Fraud and Deception - Fraud is an unpardonable excuse in the eyes of the IRS. Any kind of deception in filing returns, if exposed, can lead to a penalty of as much as 75%. Of course, cases of fraud can be argued against, but in this respect, the resources of the IRS are much too firmly in place.
These are some of the main IRS penalties that are levied most commonly. If you observe, you will understand that most of them are due to faults in filing returns and in making the actual payments of taxes. That is why, it is better to take the help of a qualified accountant to file your returns rather than handling the process yourself. This will also take some burden off your shoulders.
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