What is the Tax Penalty?
Mistakes at filing tax can be dangerous for your finances. You end up paying more money to IRS or even penalties. However, you can avoid those mistakes through careful attention to detail. You must have strict knowledge of tax rules, as well as know about the deadlines. In this writing piece, you will learn about the five reasons why you have to pay tax penalties and fines.Late Filing Penalties
Date, the first that you need to consider. You need to file your tax before the due date. You can mark the date on your calendar or encircle that date with a red marker, so you don't forget it.You need to file your tax before the deadline. You can also request a tax extension before the sale tax due date. IRS knows how much you make in a month or yearly. They know the details about your finances. So, you cannot hide your financial condition from them.
The late filing penalty adds 25% more to tax. Another important thing is to sign your bill. If you do not sign your taxpayer bill, IRS will not accept your tax return. If they do not receive your tax return, it will be as you have never filled the tax.
Provide Your Precise Financial Details
If you want to avoid penalties, you need to be accurate about your financial conditions. For example, if you are a freelancer or bought a new car, you need to mention that because the IRS will find out sooner or later in your tax return.You must journal and record the details of your finances. If they sense something is out of order or do not feel right, IRS auditors can go after your finances. You need to answers all the questions in your tax return. If you cannot present your side of the story, then there is a 25% accuracy penalty on top of the extra tax, and you have to pay the interest on the whole amount.
Penalties for Math Errors
Your math should be excellent and spot-on, and if you are not good at math, you must polish your skills. Any mathematical error during tax return can lead you to pay more in the form of penalties. You need to check and re-check the data. If any math error results in less payment of taxes, then IRS would want to pay you more taxes plus interest.Home Office Penalties
If you are running any business from home, you must allocate the space in your home for business. You can designate a room or store inventory for this purpose. In this way, you can take a deduction from your home base office.The important thing here is that the place you have designated for business should be solely used for business, not for any other activity. In case you have a spare bedroom and office space adjacent to each other, you can only deduct the area exclusively for the business. If IRS found out that you are not eligible for home office deduction, you can get into financial trouble.
Tax from Charitable Organizations
In case you are running a charitable organization, you are liable to pay tax. Tax deductions depend upon your organization's scale in giving clothing and other belongings to a charitable organization. The giver must obtain a listed slip from the firm explaining the conditions of donations.If IRS audits you or your firm and found no specific listed items on the receipt or any details regarding the condition and value of things, you will have to pay extra tax. The tax will 25% accuracy payment and interest as well. The IRS can reject the deductions if the organization is not as per IRS guidelines.
These are some of the tax-related penalties and fines. Other kinds of penalties and fines also exist that depends upon your tax situation. You can get more information regarding IRS penalties and tax liabilities from the IRS website, or you can consult to a tax preparation expert.
Conclusion
Often, the taxpayer has to face the trail and then go to jail for not filing taxes on time. It also includes some other offenses like not filing returns, escaping from taxes, unable to pay complete taxes, tax scams, incorrect statements, or not providing accurate information.No tax penalty is imposed on you if the IRS official is wrong about something. In case your mistake was not deliberate, IRS can drop the penalty charges, but you have to prove that it was a genuine mistake. In this regard, you can send a payment check and interest, along with the reason for the error. However, keep in mind that it can be problematic to get rid of tax fines, especially when you do not have a tax professional by your side.
