A List of Common IRS Penalties and Fees, and How to Avoid Them

A sizeable tax bill to the IRS is bad enough on its own, but if you’re late in paying it, fail to file or make a mistake, your bill could be compounded by a number of IRS penalties, fees and interest—all of which could make a huge bill even more difficult to pay. Some penalties may be waived under certain circumstances (and with the help of a tax attorney); other fees may be non-negotiable. Here’s the short list of the most common penalties and how you can avoid them.

Filing Late: Late filers can expect a penalty of 5 percent of the amount of tax owed each month, capping at 25 percent of the balance. If your return is more than 60 days late, the minimum penalty becomes either $100 or 100 percent of the taxes owes, whichever is smaller.

How to avoid: File your taxes on time.

Filing on Time but Not Paying Total Due: If you can’t pay your taxes when you file, the IRS can penalize you one-half of 1 percent per month, up to 25 percent. If the IRS issues an intent to levy, the rate increases to 1 percent per month after 10 days.

How to avoid: Pay in full when you file.

Errors Leading to Underpayment of Tax: If you make a mistake on your tax return leading to erroneous credits or a refund in a manner that either significantly understates what you owe or shows negligence, the IRS may tack on a penalty of 20 percent of the amount you underpaid.

How to avoid: Have your taxes done by a certified tax professional.

Frivolous Tax Submissions: If your tax return doesn’t include enough information to accurately determine how much tax you owe, or clearly understating what you owe, the IRS may deem it a “frivolous submission” and slap you with a $5000 penalty.

How to avoid: Take your tax returns seriously; have them done professionally, if needed.

Civil or Criminal Fraud: If the IRS has reason to believe you have committed a civil or criminal tax offense, the penalty may be up to 75 percent of the amount underpaid, plus jail time in criminal cases.

How to avoid: Don’t try to defraud Uncle Sam.

  • Interest: Penalties aside, any amount of unpaid tax due is subject to interest compounded daily at the federal rate plus 3 percent. Avoid this interest by paying your taxes.

Lastly, call a professional. Don’t face the IRS on your own. Call us today with your tax problem at 720-398-6088!