Tax Penalties, and How to Avoid Them by Always Filing on Time
Paying your taxes is one of those things that most of us don’t really get a lot of instruction on when we’re young. And yet it turns out to be really important when we become adults and suddenly have responsibilities. Tax penalties can cause serious interference with your life plans if you incur them. As with most things related to the IRS, the best strategy is to avoid them as much as possible.
What The IRS Demands
Above all else, what the government expects when it comes to taxes is compliance. Whatever your reasons might be for not having filed your returns on time, you should at least try. Every effort you make to show the IRS that you’re willing to cooperate looks good.
If you can’t meet the deadline, file for an extension. If you owe taxes but can’t pay the full amount, it’s almost always better to file anyway and pay as much as you can. These are just examples, and we always recommend consulting with a tax professional before taking any action. The point is to take action before incurring tax penalties.
For those who do end up missing the deadlines, the IRS has outlined what happens next.
The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.
If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.
It’s also important to note that since the most recent tax reforms, the minimum penalties have increased:
If a tax return is filed more than 60 days after the April due date — or more than 60 days after the October due date if an extension was obtained — the minimum penalty is either $210 or 100 percent of the unpaid tax, whichever is less. This means that if the tax due is $210 or less, the penalty is equal to the tax amount due. If the tax due is more than $210, the penalty is at least $210.
How to Deliver, Every Time
The key to filing on time and avoiding tax penalties is to keep careful track of all your finances and the documents that back them up. In other words, good bookkeeping! It’s best to note every transaction as soon as possible after it occurs, on a regular basis throughout the year. This way, when it’s time to fill out the IRS forms and file them, you won’t be scrambling to find an essential receipt buried in the middle of a jumbled pile. SyncLedgers‘ transaction processing and account reconciliation services are powerful tools to that end. We keep your books constantly up to date, with the added benefit of generating financial reports that can help you boost your cash flow. Contact us today to start getting your books in order before the next quarterly and annual filing deadlines!