When tax obligations are not met you as a taxpayer will owe a penalty to the IRS. A notice will be sent to you by mail detailing the penalty, reasons for the charge and the steps to proceed. There are different types of penalties for different violations. Here’s what you need to understand to avoid receiving a penalty in the first place or to know what needs be done when one is received.
The most common type of penalties that taxpayers may incur are:
- Information Return
- If you did not file the required information return or provided incorrect payee statement by the due date.
- Failure to file
- If your return was not filed by the due date.
- Failure to pay
- If you did not pay the taxes owed by the due date.
- Accuracy related
- If you have not reported all your income or claimed deductions/credits that you did not qualify for.
To avoid these penalties, you should provide all information on your returns, file accurate returns and pay by the due date. If this cannot be done by the due date you can apply for an extension of time to file. The extension does not apply to payments so a payment plan is recommended.
If a penalty is received it is best to pay in full to avoid interest charged on the penalty. In some cases, the penalty can be disputed, removed or reduced. The IRS Website is a useful source for further information on penalties.