Tax season: A look at IRS penalties

Tax season: A look at IRS penalties

According to the IRS, the average refund as of March 1 was $3,159, about the same as the comparable time period last year.

For those who have yet to file their returns, or file for an extension, the deadline to do so is April 15. Taxpayers that do not meet the deadline stand to face a number of penalties.

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Here’s a look at some:

Failure to file

If you don’t file your return, the penalty is 5 percent of the unpaid taxes for each month that a return is late. The penalty begins accruing the day after returns are due – up to a maximum of 25 percent of your unpaid taxes.

The amount is reduced by the failure to pay penalty amount during a month where both penalties apply – the maximum penalty you’ll pay for both in any given month is 5 percent.

When a return is filed more than 60 days after the deadline, it is subject to a minimum late filing penalty that is the lesser of either 100 percent of the tax required to be shown on the return that was not paid on time, or a specific dollar amount that has been adjusted for inflation ($210 for returns due between 1/1/2018 and 12/31/2019).

The penalty applies for a full month, even if it is less than 30 days late.

The IRS recommends filing your return, even if you cannot pay everything you owe by the due date.

Failure to pay

If you fail to pay your taxes by April 15, the penalty is 0.5 percent of the taxes not paid.

The penalty is weighed each month after the due date until the bill is paid or the levy reaches 25 percent of unpaid taxes.

Even if you request an extension, you are not exempt from paying your tax tab. You are liable for penalties if you don’t pay an estimate (at least 90 percent) of your tax liability by April 15.

Failure to pay proper estimated tax

This penalty applies to people who did not pay a sufficient amount in taxes throughout the year.

According to the IRS, penalties are calculated separately for each required installment, based on the number of days late, multiplied by the effective interest rate for the installment period. The penalty is applied to what you should have paid.

However this year, the IRS will waive this penalty for more people if their payments fell short in 2018. The waiver applies to taxpayers whose total withholding and estimated tax payments are at least 85 percent of the taxes they owe. The reason for the relief is because calculations were more likely to be inaccurate as a result of the new tax law and withholding structure.

Failure to take required minimum distribution (RMD)

An RMD is a requirement that certain older individuals withdraw a calculated amount of money from their retirement accounts each year. It applies to most retirement accounts, including work plans like a 401(k) and traditional IRAs.

The amount you owe is calculated by dividing your account balance as of Dec. 31 last year by your life expectancy. The IRS has its own published life expectancy calculations.

The deadline for most people is Dec. 31. However, those who reached the age of 70 ½ during 2018 have until April 1 to withdraw their first RMD. But they would still have to meet the Dec. 31 deadline next year, which would require taking two RMDs within the year.

Failing to meet the deadline could result in the IRS penalizing retirees for as much as 50 percent of the amount they were supposed to withdraw.

Source:- foxbusiness
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