Income Tax PenaltiesIt is mandatory that everyone generating an income has to pay income tax. And in the eventuality that you don't pay your taxes, you have to bear income tax penalties. Depending on the reason for your underpaying your tax, you may be exempted from income tax penalties, face civil fraud penalty or even face criminal prosecution. There are different types of income tax penalties, applicable to the condition for your not paying your tax. One such income tax penalty is failure to file penalty which you have to pay if you fail to file your return by the due date. This penalty amounts to 5% of the tax amount you failed to pay for each month. However if you can show reasonable cause for not filing your returns from time, you will not have to pay the penalty. There is the penalty for frivolous return where you have to pay a penalty of about $500 if you don't provide sufficient information for figuring the right tax or even if you show an incorrect tax amount because of a desire to interfere with the federal income tax laws or is a frivolous position on your part. You have to pay this tax in addition to any other penalty that is provided by law for income tax penalty. You have to pay accuracy related penalty of 20% for underpayment due to your negligence of rules and regulations and a substantial understatement of income tax. This penalty cannot exceed 20% of the underpayment and is exempted if there is a reasonable cause for your non-payment, accompanied with good faith. Other income tax penalties arise due to negligence on your part to comply with provisions of the Internal Revenue Code and disregard to the careless, reckless and intentional disregard of rules and regulations of the income tax department. Income tax that is substantially understated when the understatement of tax exceeds the greatest of 10% of the correct tax or $5,000 leads to substantial understatement of income tax. If you file a return with incomplete or incorrect information with the IRS by the due date, then you have to pay information reporting penalties. The penalty varies with the case of your incorrect submission where there are maximum limits. There are many more income tax penalties that you will have to bear depending on your cause and type of default in income tax payment. To avoid these income tax penalties, it is better to engage the services of a tax professional that will be able to guide you to create right tax returns. The fees you pay the tax professional will be well worth the income tax penalties you will otherwise have to pay. |