Tax penalties can be an unwelcome surprise to anyone who made an honest mistake when filling out their tax forms. In 2015, the Internal Revenue Service reported that it collected $12.4 billion from Americans in penalties.
It is not easy to get out of a penalty once the IRS has issued it. Therefore, it works in everyone’s best interest to prevent a penalty rather than deal with one after the fact. Any individual person who is filing tax returns needs to be wary of common pitfalls and take the necessary actions to avoid them.
1. Late or incomplete filing
Tax day is April 15th every year. That date should be in every taxpayer’s memory. One of the most common reasons why people end up with a penalty is that they simply filed too late.
Another reason is that the tax returns were not signed. Without a signature, a person might not have filed at all in the eyes of the IRS.
2. Math errors
Every piece of math needs to be correct on tax returns. If filers are unsure about something, then they should consult an accountant. It is better to pay for a professional’s assistance then get hit with a penalty that requires filers to pay the remainder plus interest.
3. Errors in charitable donations
Taxpayers can earn considerable tax deductions by donating money, clothing or other items. However, if someone donates clothes, for an example, then he should obtain a receipt listing the value of the donated items. Taxpayers should never simply guess the value of donations, because if the IRS believes that estimate is inaccurate, they could hit the payer with significant penalties.
4. Not paying on time
In addition to sending in tax returns by April 15th, people also need to pay any amount owed by that date. The IRS can now be paid online, but many people mail in the documents while neglecting to actually pay. Interest starts building up from the first day a payment is late.