tax penalty http://www.wisebread.com/taxonomy/term/13374/all en-US What If I Skip My Taxes This Year? http://www.wisebread.com/what-if-i-skip-my-taxes-this-year <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/what-if-i-skip-my-taxes-this-year" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/5520716864_443fb3acf7_z.jpg" alt="tax form crane" title="tax form crane" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>For many people, filing and paying their taxes can be a major source of anxiety every spring. On top of all the other things you're already juggling in your daily life, you've got those pesky tax stubs, the federal and state returns, and standing in line at the post office. And while many taxpayers are expecting a nice refund, there are plenty of folks out there who owe money to the IRS this year.</p> <p>So what if you just don't do it? What really happens to the people who ignore the whole thing and say, the heck with all of this, I'm skipping tax season?</p> <p>Well, here's the surprising news: not much. At least, not much happens to you at the beginning, and your chances of getting nabbed by the IRS &mdash; and having to pay up &mdash; differ significantly depending on the kind of income you've earned over the year. (See also: <a title="15 Surprising Facts About Income Tax" href="http://www.wisebread.com/15-surprising-facts-about-income-tax">15 Surprising Facts About Income Tax</a>)</p> <h3>Which Is Worse &mdash; Filing Late or Paying Late?</h3> <p>Let's back up a second. The law requires taxpayers to both file a tax return and pay any taxes due. And there are separate penalties associated with each of your legal obligations every year.</p> <p>But, contrary to what a lot of people think, the &quot;failure to file&quot; penalty is actually <em>worse</em> than the &quot;failure to pay&quot; penalty. And yes, the Code is way harsh and adds interest to the penalties as well as to the principal. Also, keep in mind &mdash; you're slapped with both the failure to file <em>and</em> the failure to pay penalties if you blow off doing both of them.</p> <p>That's why, if you are facing a <a title="Don't Have Enough To Pay Your Taxes?" href="http://www.wisebread.com/dont-have-enough-to-pay-your-taxes">bill that you can't afford</a>, tax professionals always tell their clients to at least <em>file</em> on time so they can avoid all of the late filing penalties and interest. And lawyers will advise you to pay any part of your liability if you possibly can, since the IRS accepts partial payments &mdash; and something is always better than nothing when it comes to your taxes.</p> <h3>Who Is Most Likely to Be Caught?</h3> <p>So who does the IRS catch up with the most? It's simple. People who've had a third-party report earnings to the IRS for that tax year.</p> <p>For example, most of our employers are required to provide information to the IRS before they pay us. Brokers generally have to report gain on stock or bond sales. Even a casino will ask you to fill out paperwork before you take home a large jackpot.</p> <p>And that's just the beginning. If you received unemployment, pension income, or pulled money from your IRA in 2011, you've left a paper trail that will lead the IRS straight to you.</p> <p>The people who have the best chance of flying under the radar for the longest amount of time? Freelancers and those who are self-employed or earn most of their income from consulting or odd jobs, because the IRS has the hardest time tracking unreported money. At the end of the day, someone who works for herself is usually the only one who reports it, and therefore, the odds of getting busted are much lower than a full-time employee at a more traditional company.</p> <p>But while it may take years for the IRS to hunt you down, and you may get lulled into a sense of complacency thinking the IRS has forgotten about this tax year, you're better off paying the piper sooner rather than later.</p> <h3>What Is the Best Way to Deal With IRS Problems?</h3> <p>In all the cases I've seen, the government has been more willing to work out a compromise or a payment plan with an individual when the person came forward on their own.</p> <p>Sure, some Americans will get away with not paying the government a dime this year. But if and when they do come down on you, the IRS can be like a three-ton gorilla. I've watched people's wages garnished, their assets seized, and their lives turned upside down until their tax debt is paid in full.</p> <p>So if you find yourself thinking, &quot;Hey, maybe I'll forget about my taxes this year,&quot; make sure you're ready to gamble on one of the most powerful agencies in the country. And you can sleep at night knowing all those penalties and interest are out there, accruing on your account.</p> <div class="field field-type-text field-field-guestpost-blurb"> <div class="field-label">Guest Post Blurb:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <p><em>Jacoba Urist is a tax and estate attorney from New York. She is a regular contributor to The Huffington Post and is writing a book &quot;The Happiest Parent&quot; about preparing the best possible future for every child. Follow her on Twitter at <a href="https://twitter.com/#!/TheHappiestPare">@TheHappiestPare</a>.</em></p> </div> </div> </div> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/jacoba-urist">Jacoba Urist</a> of <a href="http://www.wisebread.com/what-if-i-skip-my-taxes-this-year">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/surprise-5-reasons-you-might-not-get-your-tax-refund">Surprise! 5 Reasons You Might Not Get Your Tax Refund</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/irs-delays-start-of-tax-filing-for-some-taxpayers-in-2011">IRS Delays Start of Tax Filing for Some Taxpayers in 2011</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/five-easy-steps-to-keeping-track-of-expenses-for-the-self-employed">Five Easy Steps to Keeping Track of Expenses for the Self-Employed</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/turn-last-years-taxes-into-this-years-financial-spring-cleaning">Turn Last Year&#039;s Taxes Into This Year&#039;s Financial Spring Cleaning</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-survive-a-tax-audit">How to Survive a Tax Audit</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Taxes filing taxes tax law tax penalty Thu, 05 Apr 2012 10:36:07 +0000 Jacoba Urist 915138 at http://www.wisebread.com 6 Tax Penalties You Can Easily Avoid http://www.wisebread.com/small-business/6-tax-penalties-you-can-easily-avoid <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/idea-hub/topics/money/article/5-tax-penalties-you-can-easily-avoid-barbara-weltman" target="_blank">http://www.openforum.com/idea-hub/topics/money/article/5-tax-penalties-you-can-e...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/6-tax-penalties-you-can-easily-avoid" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000000438229Small.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>Would you toss a wad of cash into the wind and watch it fly away? Probably not. So why would you incur tax penalties that cost you money and aren&rsquo;t even tax deductible? You shouldn&rsquo;t. Avoid these five tax penalties and you won't be caught watching your hard-earned money flutter away.</p> <h3>Late Filing Penalty</h3> <p>There are fixed deadlines for filing various tax returns and penalties for missing these deadlines. For example, if you fail to file your personal income tax return on time (this year it&rsquo;s April 18, 2011), you are subject to a late filing penalty. The penalty is 5% of the tax due for each month you&rsquo;re late, up to a maximum of 25%. If the return is more than 60 days late, the minimum penalty is the lesser of $135 or 100% of the tax due. For partnerships and S corporations, the late filing penalty is $195 for each month or part of a month the return is late, multiplied by the total number of owners during any part of the year, up to a maximum of 12 months.</p> <p><b><i>How to avoid the penalty: </i></b>If, for <i>any</i> reason, you cannot file on time, request a filing extension by the return&rsquo;s due date. For individuals and partnerships (including most limited liability companies), the filing deadline for the 2010 return is April 18, 2011.</p> <ul> <li>Individuals (including sole proprietors and one-person limited liability companies) can request a six-month extension (to October 17, 2011) on Form 4868.</li> <li>Partnerships can request a five-month extension (to September 15, 2011) on Form 7004.</li> </ul> <p>The filing deadline for corporations (both C and S) is March 15, 2011. Corporations can request a six-month extension (to September 15, 2011) on Form 7004.</p> <h3>Late Payment Penalties</h3> <p>Federal income tax is due on the return&rsquo;s original due date, regardless of any filing extensions. The late payment penalty is 0.5% of the tax due; the maximum penalty is 25%. In addition, there are interest charges for late payments.</p> <p><b><i>How to avoid the penalty. </i></b>Pay the tax on time, even if this means requesting an installment payment agreement on Form 9465 or by charging the outstanding amount to a major credit card (find authorized <a target="_blank" href="http://www.irs.gov/efile/article/0,,id=101316,00.html">credit card processors</a>).</p> <p>If you fail to pay on time, you can still avoid the penalty by showing reasonable cause for the lateness. Reasonable cause includes having paid (through withholding, estimated taxes, and additional payments) at least 90% of the taxes due.</p> <h3>Estimated Tax Penalties</h3> <p>If you are self-employed, you probably need to pay estimated taxes to cover your payments for the year. Payments are due four times each year; you cannot wait until you file your return to make a single payment. If you fail to pay minimum amounts, you are subject to underpayment penalties. Essentially, this is an interest charge that is adjusted each quarter. The rate for the second quarter of 2011 is 4%.</p> <p><b><i>How to avoid the penalty. </i></b>Figure estimated taxes based on one of two safe harbors by paying the following amount over the four installments:</p> <ul> <li>At least 90% of the taxes due for the current year.</li> <li>At least 100% of the taxes shown on the return for the prior year (110% if your adjusted gross income in the prior year was more than $150,000 or more, or more than $75,000 if married filing separately in the current year).</li> </ul> <p>Note: Different percentages apply to farmers and fishermen. Consult a tax professional.</p> <h3>Late Employment Tax Deposits</h3> <p>If you have employees in your business, you have certain payroll tax responsibilities. This includes withholding income taxes and the employee share of FICA (Social Security and Medicare taxes) from their paychecks as well as paying the employer share of FICA and the FUTA (federal unemployment tax). If you fail to deposit these taxes with the government on time, or if you deposit less than the full amount owed, you are subject to a penalty ranging from 2% to 15%; the quicker you make the late deposit, the lower the penalty rate will be.</p> <p><b><i>How to avoid the penalty. </i></b>Make deposits using <a target="_blank" href="http://www.eftps.gov/">EFTPS.gov</a>, which is a free electronic payment system. You can schedule your payments in advance so that they are automatically transferred from your bank to the U.S. Treasury on the due date.</p> <p>Note: Very small employers &ndash; those permitted to file Form 944 because their annual payroll taxes do not exceed $2,500 &ndash; can pay the taxes with their annual return.</p> <h3>Late Sales Tax Deposits</h3> <p>If your state levies sales taxes, you must collect them and pay them in a timely manner. Each state has its own rules regarding payments and penalties. Even though you do not actually pay the sales tax &ndash; your customers do &ndash; you must transfer the funds to your state or face penalties.</p> <p><b><i>How to avoid the penalty. </i></b>Learn about your sales tax obligations from <a target="_blank" href="http://www.taxadmin.org/fta/link/">your state</a>.</p> <h3>Late Information Returns</h3> <p>In the course of your business, you are required to provide various information returns, such as 1099s, to the IRS and to service providers and others. If you fail to do so and do not have reasonable cause for the failure, you are subject to a penalty. The longer you fail to file or submit full information, the greater the penalty (explained in <a target="_blank" href="http://www.irs.gov/pub/irs-pdf/i1099gi.pdf">instructions for certain information returns</a>).</p> <p><b><i>How to avoid the penalty. </i></b>Learn which forms you are required to file. If you discover that you failed to submit a form on time, correct your mistake as quickly as possible to minimize penalties.</p> <h3>Bottom line</h3> <p>Work with a knowledgeable tax professional who can help you meet your filing obligations and avoid penalties. Money spent avoiding these and other tax penalties is definitely not money thrown into the wind.<b><i><br /> </i></b></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/barbara-weltman">Barbara Weltman</a> of <a href="http://www.wisebread.com/small-business/6-tax-penalties-you-can-easily-avoid">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-is-the-one-skill-you-need-if-you-want-to-work-for-yourself">This Is the One Skill You Need If You Want to Work for Yourself</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/101-tax-deductions-for-bloggers-and-freelancers">101 Tax deductions for bloggers and freelancers</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/lessons-we-can-learn-from-blockbusters-demise">Lessons We Can Learn From Blockbuster&#039;s Demise</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-small-business-pitfalls-and-how-to-avoid-them-part-one">6 Small Business Pitfalls, and How to Avoid Them: PART ONE</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Entrepreneurship Small Business Resource Center Taxes employee tax FICA FUTA Sales Tax small business tax penalty Thu, 24 Mar 2011 22:02:24 +0000 Barbara Weltman 502507 at http://www.wisebread.com