Why Would You Incur an IRS Penalty

Bedford, NH Resident Looks to Understand Potential IRS Penalties

One of the most common IRS penalties is failure to file. If you do not file your taxes by the April 15th date, though this may vary if it falls on a weekend, or October 15th if you filed for an extension, the IRS could charge you a failure to file penalty. If you file your taxes but do not pay the balance owed to the IRS by the April deadline, you may incur a failure to pay penalty. Self-employed individuals, including freelancers and business owners, are required to pay estimated taxes. If you conclude the year owing more than $1,000 to the IRS, you can be hit with the failure to pay proper estimated taxes penalty. If the check that you send in to cover your outstanding taxes does not clear the bank, the IRS can charge you a dishonored check penalty.

A Bedford taxpayer had been hit with steep IRS penalties in the past. Looking to avoid these expenses in the future, he contacted the team at Merrimack Tax Associates for advice about IRS penalties.

How Much are IRS Penalties

If you neglect to file your taxes by the deadline and owe money to the IRS, the tax penalty is 5% of the unpaid tax accruing monthly until the return is filed and the outstanding bill is paid. This is capped at 25%, or five months. However, if your tax return or payment is made greater than 60 days past the deadline, there is a minimum penalty of either $435 or 100% of the taxes owed whichever is the lesser amount.

When you file your return but do not settle your outstanding tax balance by the April deadline, the penalty is 0.5% of what you owe, accruing month after month and capped at 25%.

Avoiding IRS Tax Penalties

IRS penalties are entirely avoidable. Filing your taxes on time, or filing an extension when this is not feasible, and making any necessary estimated tax payments each quarter will go a long way to reducing your risk of being hit with an IRS penalty. If you do incur a penalty, it is possible to work with the IRS to have these penalties removed or reduced.

Thanks to the team at Merrimack Tax Associates, the Bedford resident now has a better understanding of how to avoid IRS penalties in the future.