Tax fines or penalties can be confusing, burdensome, and are an undesirable consequence of not doing the right thing or timely. Whether it`s associated with a sporting event, school grades, or paying taxes, penalties are designed to make noncompliance more painful than the behavior or ignorance of doing the right thing.
As a tax professional, my job is to help my clients avoid as many penalties as possible by paying the correct amount of taxes on time and in full. Here are some of the most common tax penalties that every taxpayer can face.
Whenever a taxpayer fails to pay what he owes to the IRS, he faces certain penalties. If they do not pay the tax reported on their tax return, they are subject to the penalty for non-payment, which is 0.5%. That extra amount is added each month to your income taxes due. Such penalty continues to grow until the balance is paid in full or reaches 25%.
If the IRS sends a lien letter of intent, the taxpayer has 10 days to pay their tax or the 0.5% penalty rate goes up to 1%. If the taxpayer files his return on time and requests an installment agreement, the penalty rate for non-payment of 0.5% is reduced to 0.25%.
Failure to submit your Tax Report on time
The fine for not filing the return is 4.5% to 5% of the unpaid tax, per month. However, after five months of not filing such a report, the IRS will impose a 25% penalty.
Also, if a taxpayer does not file their return and the IRS eventually files a substitute for the report, taxes are calculated without taking into account any deductions or credits. Consequently, the calculated taxes will be excessively high.
Early withdrawal from retirement plan accounts
Millions of Americans take advantage of tax-advantaged retirement accounts because they enhance their savings for their retirement years.
Tax-advantaged retirement accounts put the money from each paycheck into a special account, such as an IRA or 401 (k), before paying taxes. The accounts are structured so that people can start withdrawing that money when they reach the minimum age of 59 and half years. If the funds are withdrawn before this age, they will be subject to 20% tax and 10% penalty.