No one likes owing taxes when tax time comes around. As we noted in a previous post, most people would rather pay taxes through their regular wages with each paycheck and get a large refund every March. But when people have the misfortune of owing taxes, it is best not to compound it by owing penalties and interest.
With that, this post will highlight three situations where penalties may apply and how you can avoid them.
Non-filing penalty – Some people may not bother to file their tax return by the April 15 filing deadline because they can’t afford to pay their tax bill. To avoid this penalty, simply file your return, even if you can’t afford the bill at first. There are ways to establish a payment plan that you can afford.
Non-payment penalty – For those who file their returns but do not pay their bill, they could be subject to a separate penalty that is assessed at .5 percent of the total tax due each month. Again, contacting the IRS and establishing a payment plan can help in preventing this penalty from growing.
Underpayment penalty – For those filers who are independent contractors or small business owners, they may not pay enough on quarterly taxes throughout the year. To avoid this penalty, finding out if you qualify for one of two important tax-filing safe harbors can help. An experienced tax law attorney can help in understanding which safe harbor would be in your best interests.
The preceding is not legal advice.