Individuals and businesses are aware of tax filing and its significance. However, most people do not understand that the process isn’t as simple and straightforward as it seems. During the process of tax filing, businesses or individuals may make certain mistakes that may backfire on them in the form of IRS audits. Many people are aware of the nasty process of IRS audits and would rather stay away from one, but making a mistake on your tax filings can invite the IRS to your doors.
Whether you are attempting to file your tax records yourself or have been served an IRS Audit letter, there are some things you need to know, especially from specialists who boast of years of experience rendering Tax Relief Services in Los Angeles.
Below are some of the common tax penalties you should strive to stay away from.
– Failing to File Your Taxes
The Failure to file tax records carries steep penalties. These penalties have been specially designed for people who have been skimping on their tax remittances to the government. When a person or a business is cutting back on their taxes or failing to remit their taxes to the government, such a person may be faced with the full wrath of the law to reclaim what has been defaulted, in addition to fines and other punitive actions.
A person or business is regarded to have failed to file their taxes when they have failed to submit their tax returns by the deadline date set for the year.
If a person is unable to pay their taxes when due, such a person may be eligible to file for an extension request which allows such an individual another six months to process their taxes, collect all relevant information, and submit before the extension date deadline.
– Late Tax Payment
The late tax payment is classified as when a person or business has failed to pay up the amount due in tax by midnight of the tax filing deadline. Such failure will lead to penalties in the form of fines that will be added to the current balance of the tax that is already owed.
It is important to note that such fines and penalty charges will also contribute to the compound interest that is being added on to the overall amount owed by the defaulter.
– Underpayment Penalty
The underpayment penalty is levied against small business owners who are paying an amount that is considered less than their estimated taxes. Such a business that reports or files an amount that is regarded to be less than their estimated taxes would be levied with this penalty.
The penalty fee will be added on to the amount the business has defaulted and will be expected to be paid in full during the next round of tax filing. However, if such a small business fails to make this payment in full, fines will be imposed and added on to the owed amount.
In cases like this where a business owner is unsure of how much they owe, it is recommended that such a business owner overpay, rather than underpay.
– Tax Fraud
The IRS does not condone tax fraud. In fact, tax fraud is regarded as one of the biggest crimes a business or an individual can commit against the IRS. Tax fraud can be regarded as a failure to report a source of income or when a business claims to have incurred so many expenses, with the aim to increase deductions and decrease the overall amount remitted in taxes.
If a business or an individual is caught underreporting, overestimating their deductions or failing to report one or more sources of income, such a person will be penalized 75 percent of the amount owed to the IRS. In addition, such a person may also face steeper penalties in the form of criminal charges which may result in jail time.
A business or an individual can avoid such cases of fraud when he or she discloses the full extent of their income sources and correctly estimates the deductions.
– Charitable Organization Penalty
The owners and operators of charitable organizations may be penalized by the IRS if they are caught operating profitable ventures that are not being taxed or reported. The IRS may as a punitive measure, impose a sizeable penalty on such an organization, thus, further compounding their annual tax record. In some cases, the IRS may also move to revoke the non-profit tax exemption status that has been granted to the organization.
– Healthcare Penalty
Individuals are required to insure themselves and their families against health conditions and health risks. If an individual fails to purchase sufficient insurance coverage to cater to their needs and that of their family, such a person may be faced with costly penalties in which may be added to the existing tax debts.