Getting into trouble with the IRS can be the worst thing for your business. The reasons could be different but the results are always stressful. Owing taxes to the IRS is a big issue but facing a penalty is daunting because it spells legal troubles as well. The concept of a tax penalty is nothing new; its objective is to enforce punishment to make sure that you pay up and never make the same blunder again.
Dealing with a penalty is difficult and you must absolutely have a tax attorney to help you with the resolution of the problem. At the same time, you need to understand what tax penalties are and how you can avoid them. Knowledge and awareness can actually help you to prevent them in the first place. Here are some key facts about the IRS tax penalties that you need to know.
Fact #1: There are different types of tax penalties
Basically, the IRS will penalize you when you are doing something wrong with your taxes. The penalties vary according to circumstances and you will need to handle them differently. Listed below are some common types of IRS tax penalties.
- Not filing the tax return on time is one of the major causes of IRS penalties. If you fail to meet the deadline, you will have to pay a failure-to-file penalty.
- Failing to pay on time, even after you have filed your return on time, is another reason that can cause a penalty.
- Another reason why you could be penalized is when you file and pay on time but fail to pay the full amount of tax you owe to the IRS.
- You may also get into trouble for paying the wrong amount of tax, even is the mistake is unintentional.
- On the other hand, a frivolous penalty is applied if you deliberately submit the wrong details for your tax returns.
- Making a bad payment such as a bounced check is another reason that can get you implicated.
The rates for these penalties vary from case to case and a seasoned attorney or tax professional can give you a complete picture. Ideally, you should be regular with all your taxes to avoid any kind of penalties. In case you do face them, get legal help to address them in the right way.
Fact #2: You will probably not face a penalty if getting a refund
You are in luck if you are expecting a tax refund because you will probably not face the failure-to-pay penalties in this case. A majority of taxpayers get a refund, which is good news because they are saved from penalties. But this does not mean that you should be careless about filing on time. The best approach is to file your return before the due date because the sooner you do it, the sooner you get the tax refund.
Fact #3: You may also owe interest to the IRS
If you are unable to clear your tax debt to the IRS, a lawyer can help you get a settlement agreement with them. The best approach, therefore, would be to hire a seasoned attorney to settle your tax problems today rather than later. However, you need to be aware that your installments will also carry an interest amount. This is because the IRS will charge interest on deferred payments instead of a lump sum clearance of the amount due to them. Obviously, you should not expect to get an easy payment option without giving them something extra.
Fact #4: You can even request a penalty waiver
While a lawyer may get you an easy settlement for the amount due to the IRS, they can even assist you with a penalty waiver. Your chances of getting a reduction or waiver depend on your past record and circumstances. For example, you can seek first-time penalty abatement if you have never filed a tax return before or never received a penalty from the IRS in the last three years. Another situation when you may get a waiver is when there are reasonable reasons for not filing or paying taxes, such as fire, natural disaster, serious illness, incapacitation or death. The IRS can give you relief if they deem the circumstances to be reasonable enough. You may also get relief under statutory exceptions. However, this is possible only with the help of a legal professional who can prove the case in your favor.
Fact #5: Waiting too long can only increase your problems
Not filing your return can have implications that are worse than you expect. When you fail to follow the norms, the IRS will file the return and assess the tax liability on your behalf. This means that you are now legally liable to the government and may even get a notice from the IRS. You may even get implicated for serious offenses such as committing fraud or evading taxes. So the best thing to do is to always be on time with your return and tax payments. Follow the deadlines as a rule because even a minor delay can cause penalties and problems. Having a certified financial professional to prepare your tax records is important. At the same time, you also need a tax attorney to take care of the legal aspects of your case.
Avoiding IRS penalties should be your top priority if you want to keep your business on the safe side. In case you know that you will not be able to file your return or pay your taxes before the deadline, apply for an extension well in time. Since you will probably not know these implications, it is best to collaborate with a legal professional who can guide you from end to end. What’s more, they can even save you from major hassles if you have a huge penalty staring you in the face. So you should surely have a tax lawyer in your legal team to keep your business protected from the IRS penalties.