Keep your hard-earned cash in your bank account where it belongs! Avoid these tax penalties so you don't have to give Uncle Sam any extra money than you absolutely need to. (Thanks to Barbara Weltman and her article for the OPEN Forum)
- Late Filing Penalty: 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. If you cannot file on time, request a filing extension by the return’s due date.
- Late Payment Penalties: Federal income tax is due on the return’s original due date, regardless of any filing extensions. The late payment penalty is 0.5 percent of the tax due, with a maximum penalty of 25 percent. Interest is charged as well. Pay the tax on time, even if you must pay in installments or charge to a credit card.
- Estimated Tax Penalties: Self-employed individuals need to pay estimated taxes four times per year. If you fail to pay minimum amounts, you are subject to underpayment penalties. Be safe by paying at least 90 percent of the taxes due for the current year, or at least 100 percent of the taxes shown on your return for the prior year.
- Late Employment Tax Deposits: If you have employees in your business, you have certain payroll tax responsibilities. 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 percent. Try making your deposits using EFTPS.gov, which is a free electronic payment system.
- Late Sales Tax Deposits: 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. Use this link to find the rules for your state.
- Late Information Returns: 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.
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