While the IRS will never win a popularity contest, failing to obey tax laws or submitting a tax return with mistakes can subject you to penalties and fines.
Use this penalty checklist as a guide to prepare accurate and timely tax returns.
Tax Mistakes With IRS Penalties
- Forgetting to sign your return. Did you know that the IRS won’t accept a tax return unless it’s signed, and sending in an unsigned tax return is the same as not filing at all?
- Not keeping mileage journals. Self-employment numbers are up, and many self-employed taxpayers are taking advantage of mileage deductions. If your mileage deduction sets off an audit red flag, you’ll need to produce a mileage journal.
- Failure to keep receipts. When it comes to deductions, receipts are a must-have. Credit card statements and bank statements aren’t enough. If your deductions are audited, only receipts will serve as proof of your deductions.
These mistakes can cost as much as a 25 percent penalty on top of your tax bill, plus interest. Hiring a tax professional to help you file electronically can prevent costly mistakes and errors, and a working with bookkeeping service or accountant will ensure your records meet IRS guidelines.
- Failure to file. Fees and interest begin accruing immediately after the file date. The penalties vary depending on the amount of taxes owed; typically the fee is 5 percent of unpaid taxes for each month or part of the month that a tax return is late.
- Failure to pay. A failure–to-pay penalty of 1/2 to 1 percent of your unpaid taxes starts accruing the day after the tax filing deadline.
Many people fail to file a tax return because they cannot pay the tax due. The IRS accepts payments; there is no reason not to file a return every year. If your paperwork is not in order, you can file an extension, but your tax liability is still due on the filing day. An experienced tax accounting service can help you estimate taxes, file an extension and make the most of your deductions.
Inaccurate Reporting and IRS Penalties
- If you have an overseas bank account with $50,000 or more, you must file Form 8938. Failure to disclose can result in penalties and legal liabilities.
- Mixing business and personal expenses is a red flag, triggering an audit. While an audit itself may not trigger a penalty, the process is time-consuming, and legal representation during an audit can be costly.
A tax accountant or professional tax service provider will provide a checklist for you to ensure that you disclose all sources of income and file an accurate return.