Underpayment of Taxes
Underpayment of Taxes
There are numerous ways to attract the unwarranted attention from the IRS – almost too many to count. Underpayment of taxes is one of the surest ways to garner their scrutiny, however, and is best to be avoided, whenever possible.
In the case that you don’t pay your federal taxes, in entirety, the IRS will begin tacking on penalties, late fees, and interests. Penalties range in severity, depending on their reasons, and can even sometimes result in criminal charges. If you continue to not pay, the IRS can even place a lien on your assets and property, including your bank account and home.
Some common types of penalties that can incur from underpayment of taxes:
- Failure To Pay: If you don’t pay the entirety of the balance due on your tax return, the IRS will begin to tack on .5% interest for the overdue amount, per month or for part of month overdue. This can continue up to 25% of the total overdue amount
Failure To File: In the case that you don’t file a tax return at all – thus underpaying 100% – the IRS will attach a penalty of 5% of the total overdue amount, per month not filed, up to 25% of the total overdue amount. In the case that your return is over 60 days late, the IRS will automatically issue a $135 fine, or 100% of the overdue amount, but not at the same time as the failure to pay penalty, which will be subtracted from the failure to file penalty.
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- Inaccuracy: If you underestimate your taxes by 10% or $5,000, due to a mistake, the IRS may attach a penalty of 20% of the total overdue amount, if they have reason to believe the error was legitimate.
- Fraudulent Return: If the IRS believes you have committed fraud on your tax return, grossly under-reporting your total income, they can fine you up to 15% of the overdue amount, per month, up to 75%.
- Frivolous Return: The IRS can fine you up to $500, if you file a claim without sufficient information to process or containing erroneous information. It only applies when it is obvious that you intended to interfere with the tax process.