At one point we have witnessed the IRS go for the “who’s who” in our society. Big names have been floored easily due to tax-related frauds. Consequently, this is one arm of the government that you wouldn’t want to joke with. As the April deadline approaches, most individuals have already filed their taxes and are continuing with their daily routine. For some, the next time they’ll need to think about taxes will be the following year. Others will receive an unexpected message from the IRS often accompanied by a penalty charge.
Whichever side of the coin you are, you have to agree, remitting your tax is one of the most important patriotic duties you have. Howbeit, it is noteworthy that some of these penalties may not necessarily mean it was your fault. Therefore, it is ideal to confirm whether you qualify for a tax waiver on their website. Nonetheless, here are some of the most common tax penalties imposed by the IRS.
Failure to pay taxes
Not paying your taxes can result in some severe penalties. Some outline this penalty to account for 56 percent of all penalties imposed by the IRS. These charges are incurred if you fail to pay taxes on time. Before being penalized, the IRS considers various factors that could have impeded you from remitting your taxes. These factors can range from natural disasters to any family disturbance. However, if it is determined that you failed to pay taxes due to negligence on your part, you’ll officially be penalized. Nonetheless, if it is your first time to be penalized, then you can always apply for FTA (first-time penalty abatement).
How to qualify for FTA
- For the past three years, you need to have not received any prior penalties apart from estimated penalties
- You need to have filed all tax returns
- You have remitted all taxes or at least arranged to have it paid
When compared to other tax penalties, this is the most severe penalty of all. In case the IRS can prove that you under-reported your salary or you had the intent to fraud, which they will most likely do, then you need to prepare yourself either for a lengthy jail term or a tax fraud penalty. What is an underpayment penalty? Well, it is surely not a death sentence, but it is close. This is a penalty incurred when you intentionally falsify or fail to remit your total estimated tax. IRS charges 75 percent of the underpaid amount. The best way to avoid this penalty is to file your taxes truthfully and accurately.
Tax filing inaccuracy
If the IRS can prove that due to your negligent nature you filed an inaccurate tax return, then they will penalize you. However, if you can prove that you correctly stated your tax position, then you can obtain a tax relief from all these penalties. Typically, to withstand an IRS onslaught is hard. If you can prove beyond a reasonable doubt, then your tax penalties can be abated. It is noteworthy to state that if IRS can prove their case, then you are liable to a 20% penalty.
Tax fund recovery penalty
Starting a business may be easy, but running it is a real hustle. As a small business, you need to be aware of various tax obligations. In case you have employees, then it is your duty to pay trust fund taxes or what is usually called payroll taxes. These taxes include Social Security & Medicare (FICA), federal unemployment tax, and, lastly, income tax. Small businesses are required to withhold FICA and the federal unemployment tax and have them remitted to the IRS every month. Employees who fail to pay trust fund taxes willfully can be held liable by the IRS and ultimately required to pay a fine. One of the top five reasons to use spreadsheets to manage your business’s finances is that you get hold of your taxes. This helps you keep track of your finances while also saving your business altogether.