Taxes — you can’t escape them. They are and will always be there, like it or not. Some years, you’ll find you have no issue with your tax filing, and others, you will have problems arise that result in you having to pay penalties.
There are various reasons the Internal Revenue Service will charge penalties. How much you end up having to pay — if you have to pay at all — depends on the exact problem. What are some of the most common reasons for tax penalties?
Failure to file on time
Tax day is usually the same day every year. It typically falls in mid-April. This is the day you must have your taxes filed and paid in full or have a payment plan set up. If you cannot pay by that day or need more time getting your tax filing together, you may file an extension. There are fees involved with this, but at least you’ll avoid the penalty and interest that will accumulate if you fail to file on time.
Before filing, check, double-check and even triple-check your return for mistakes. You can catch most by doing a quick review. However, some errors may make it through without you noticing. If this happens, it can result in an audit and penalties and interest charged until correction of the issues.
Underpayment of estimated taxes
Not everyone has to make estimated tax payments throughout the year, but if you do and fail to pay the right amount, the IRS could charge you a penalty. Generally, your tax preparer or tax preparation software will let you know if you’re required to make these payments.
There are several ways to pay taxes — check, automatic withdrawal from checking or savings, and even credit card payments. If your payment bounces due to lack of funds or credit, the IRS can charge monthly fees and interest until you make your payment in full.
What can you do if charged a penalty?
There are many other penalties out there than the few discussed above. If you find yourself facing any of these or others that are more serious, there are a few ways you can go about addressing the penalty:
- Pay it
- Dispute it
- Reduce it
Many Colorado residents end up paying the fines. Some can completely dispute the penalty and not have to pay it. Others can reduce how much they owe. What happens to you depends on how you choose to approach the matter, what the problem is, and if you or your legal counsel are successful at negotiating with the IRS.