The deadline to file your tax returns is this week! Of course, you are able to file an extension to get a few more months to get everything in order, in case you still have outstanding documents you may need or need to schedule your appointment with your currently-swamped-accountant, but you’ll need to make sure you do it soon to avoid penalties.
When it comes to tax penalties, there are several you can be held liable for. If you’re paying an accountant for help with your taxes, they will, of course, know enough to make sure that you are not only aware of potential penalties, but also the steps you need to take to avoid them. But if you’re doing your taxes yourself, you should be crystal clear on the types of personal taxpayer penalties you could be facing if things aren’t done correctly when you file.
Here are a few of the most common types of tax penalties you may face if deadlines, information, or payments are incorrect or absent:
Underestimate and late payment penalties
- If you are self-employed, you have the option every year to make a lump sum payment on your tax returns from the year before, or to make quarterly estimated tax payments at the end of each quarter. If you underestimate those quarterly payments and pay less than you are supposed to, you could be penalized. The rest of us that have taxes already being withheld by our employers will pay in one lump sum every year. If you have a deadline for payment on your lump sum (typically April 15 every year), or if you have a payment schedule arranged with the IRS, make sure that your payment is postmarked for that date and sent out as soon as possible. Better yet, make your payment online on or before that date! This penalty is interest-based and adds up the longer you go without paying–don’t get caught up in tax penalty hell because you forgot to make a payment by the scheduled date!
Failure to file timely returns
- Every year, the typical deadline to file is April 15. You can, as has been mentioned, file for an extension, which will often put your deadline in October. But what happens if you miss either of these deadlines and don’t file at all? The answer: a pretty nasty penalty. Not filing your taxes on time (or at all) results in a whopping 5% of your unpaid taxes for each month past your filing due date, up to a maximum of 25%. If your return is 60 days late or more, you may also be hit with a minimum penalty of $135 on top of that. The solution? Make sure you file on time.
- Make a mistake on reporting your income, bonuses, gifts, or something else? You could definitely pay for that, because the IRS doesn’t like information that doesn’t add up, and they certainly don’t like having to make adjustments when it doesn’t. If they have to increase the amount you owe, they could also slap you with a penalty of anywhere between 20-40% of that unpaid amount–that is not a bill you want to receive.
Information return penalties
- Finally, if you are a small business owner or are self-employed and occasionally work with contractors, you will want to make sure that you file your information returns on time. Information returns aren’t returns that require any kind of payment, but rather returns that report that you have made payments to either employees or contractors in your business. The IRS needs these forms to measure up your claims against the claims of those employees or contractors to see any discrepancies that may exist. The penalty may not be as harsh as the others listed–it’s only $50 per form you don’t file–but it’s still money you don’t want to spend if you don’t have to.
Tax season can be draining for many of us, but it’s so critical to know what kind of problems you face if you don’t get the right information filed, filed on time, and the right amount of money paid when you need to. Educate yourself on these penalties so you know what to avoid…or you may need to set aside money in your budget to take care of them in the coming months!