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The IRS is much feared when it comes to government agencies. While the audit is the tool of the IRS, most people will never experience it. Instead, we are all far more likely to pay penalties at one point or another. Although not nearly as stressful as an audit, they can add up quickly and do serious damage to one’s bank account. There are a host of penalties that can be assessed from a tax perspective. One need only look at Willie Nelson who was so far upside down on his taxes that he had to actually release a CD for which all the revenue went to the IRS! Hopefully, none of us will ever be in that situation, particularly since I sing like a cat in an alley. Still, there are common tax penalties we may all walk into. Let’s take a look at them. Filing your tax return late is definitely going to generate a penalty. The penalty is usually 5 percent of each month you are late. That being said, the penalty caps out at 25 percent. Ah, but a percentage of what? The percentage is applied to the tax that was due. If you owed $10,000 and didn’t file for 6 months, the penalty would be $2,500. What if you file the tax return on time, but don’t actually pay the tax then due? You are still going to face a penalty, but it is going to be much less than what you faced with the failure to file penalty. This penalty will equate to half a percent per month you didn’t pay the tax. That is pretty painless. The accuracy related penalty is a step up in penalties. This penalty is assessed when you under pay your tax because you show negligence or disregard for the tax regulations. It can also be assessed if you understate the tax due. The penalty in this situation is a hefty 20 percent of the underpayment. Fraud is something that really gets the IRS fired up. If you under report the tax you owe because of a fraudulent move, the penalty is a killer. How so? It is 75 percent. Yes, 75! There is a very decent chance you will also face criminal charges for the fraudulent act, which raises the specter of jail time. The tax code is full of provisions allowing the IRS to have at you if it finds fault with your efforts regarding taxes. The above represent the most common assessed penalties, but hardly all of them. Thomas Ajava writes for BusinessTaxRecovery.com - where you can get tax help when fighting the IRS.
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