Remember that frantic scramble to file your taxes on April 15th? Procrastination happens, especially with taxes.
But a rushed job often leads to a botched job. Why? Because there’s no time to double check to make sure everything is right. Small mistakes can be a big deal on a tax return.
Then, a letter from the IRS hits your Greater Seattle mailbox and, worse, it’s a penalty notice for that error you didn’t have time to double check. Yes, mistakes happen… but generally less often if you give yourself time to check your work.
Tax penalties come in various flavors, but each one has its own bite. Here are the four most common tax penalties (in order of scare-level):
- Failure-to-file penalty. This can cost you 5 percent of your unpaid taxes for each month your return is late, capped at 25 percent.
- Failure-to-pay penalty. Accruing 0.5 percent monthly on unpaid tax balances, also capped at 25 percent.
- Accuracy-related penalties. These sting even more, reaching 20 percent of the underpayment resulting from negligence.
- And let’s not forget tax evasion. This carries the harshest consequences and includes hefty fines… even jail time.
So, how can you avoid facing this scenario?
Well, the good news is the IRS isn’t unfeeling to your situation. They understand that sometimes life throws curveballs that mess with your taxes… or you just genuinely make mistakes on your return.
That’s where penalty abatements come in. These are kind of like a shield against potentially unfair financial burdens. An abatement can help you reduce what you owe. It could even mean the IRS forgiving your penalties altogether (though in rare cases).
Maybe you were hospitalized during tax season or experienced a death in the family. These are considered “reasonable causes” for penalty relief.
And reasonable causes for penalty abatement go beyond life-threatening emergencies. Your tax records burned up in a sudden fire? Unexpected job loss? Even relying on a bad King County tax preparer (or bad tax software) can be considered a reasonable cause.
The key here is knowing how to present your case effectively… following the proper steps.
Negotiating with the IRS can be daunting, but if you can build a strong case for penalty abatement by demonstrating “reasonable cause” for your tax issues, you’ll have a fighting chance.
This is an opportunity to make the most of any tough circumstances or bad tax advice, and get to the best possible outcome. You’re not a criminal, so don’t forget to use your clean record to argue your case. If you are normally on top of your tax returns, with no penalties in the last three years, you may already qualify for penalty relief.
Once you’re armed with a little know-how to help you take advantage of penalty abatement, you’ll be able to better assess your situation and build a solid case for the IRS to get relief from painful tax penalties.
Of course, you’re always better off not having to deal with tax issues in the first place, so don’t wait for tax trouble to come around. Proactively get help with your tax situation if you’re unsure about how to do things right. This helps you avoid IRS problems and minimize the risk of penalties.
You don’t have to face the IRS alone. We’re here to help you deal with mistakes and fix them. Grab a time on our calendar if you’re ready to be proactive.
Helping you get things done,
Christopher Chapman