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The IRS provides penalties for various reasons. Here is a listing of some of the reasons the IRS may assess you with a penalty when you file your income tax return:
Filing late. One of the most common reasons for an IRS penalty is due to a failure to file taxes on time (by the due date). If you do not file your income tax return by April 16, 2007, the IRS may assess a penalty.
· If you file your 2006 income tax return later than 60 days after April 16, 2007 (or an extended due date), a minimum penalty of $100 will be charged to you. The minimum payment will be the smallest of $100 or 100% of your unpaid tax.
Failure to file. If you fail to file your income tax return by the due date, you will be assessed a 5% penalty by the IRS – in general. This amount applies for each month that your return is late. It cannot exceed 25%.
Late payment. If your taxes are not paid by the due date, you will be assessed a penalty of anywhere from ½ to 1% of your unpaid tax amount. This applies for each month you are late paying. There are stipulations regarding extensions, however. If you filed for an extension, you will not be charged a late paying penalty if you paid at least 90% of your tax due with the extension application.
Substantially understate your taxes. If the amount of taxes on your income tax return is substantially less than the actual amount you owe, you may be assessed a penalty by the IRS.
Understate a reportable transaction. This goes along with the above. If you understate a reportable transaction it may come across that you are trying to avoid paying taxes on the transaction. The IRS does not like this. You do not want this.
File a frivolous return. This penalty may be $500. A frivolous return is one what does not contain enough information to calculate any tax.
Fail to supply a SSN (or individual taxpayer identification number). This is why it is so important to double-check your return before finally filing it with the IRS.
Provide fraudulent information on your income tax return. The IRS will assess hefty penalties if they find you engaged in this activity. Penalties can be 75% of the underpayment.