In the U.S., we have a pay-as-you-go tax system, meaning that anything you buy or earn is taxed throughout the year, avoiding having to pay a large lump sum during tax season. However, if you have not paid enough taxes at the end of the tax season, you may get a penalty for underpayment from the IRS. But don’t panic – this happens more frequently than you might think, and our JLW Tax & Bookkeeping Services accountants are here to help! Keep reading below to learn more about tax penalties, if you have one, and what will happen after you’ve received a penalty letter.
What Does It Mean to Owe a Tax Penalty?
Having a penalty on your taxes can strike fear in many individuals, but don’t worry; our accountants at JLW Tax & Bookkeeping Services in Springfield, IL, are here to help explain what a penalty means. A tax penalty happens when the IRS has identified that you are underpaid for taxes throughout the current filing year. Regardless of the underpayment, the IRS will request more information on why payments were missed and determine the proper penalty (or waiver of penalty) based on what you provide.
When Doesn’t a Tax Penalty Apply?
If you unknowingly have an underpayment of taxes, there may be a way to avoid paying the remaining tax balance left to the IRS if you are a qualifying individual. The IRS gives specific exceptions when underpayment of taxes occurs, such as experiencing a casualty or disaster, retiring at 62 or older during the current tax year, not willfully neglecting the payment, or having a reasonable cause for not making the payment. To see if you qualify for exemption from your tax penalty, contact our attorneys at JLW Tax & Bookkeeping Services in Springfield, IL.
What is the Penalty for Underpayment of Taxes?
Whether you’ve knowingly or unknowingly underpaid for taxes this year, the IRS is quick to determine this issue and will notify the individual as soon as possible. But what exactly is the penalty for something like this? Depending on the underpayment amount, the IRS will penalize an individual based on the severity of the missing payment. However, most of the time, it is a fee of 3% or larger on the unpaid amount or an immediate payment plan with interest for the underpaid amount. Unsure of what your penalty letter is depicting? Contact JLW Tax & Bookkeeping Services in Springfield, IL, for assistance.
Do You Owe a Tax Penalty?
So, how do you know if you owe a tax penalty? After filing taxes for the year and the IRS has examined them, you will receive a letter within a few weeks of filing stating that you owe additional taxes. If you do not receive this letter, your return is processed smoothly, or you have already received your refund, you do not owe a tax penalty. To ensure everything is included in your tax return, contact JLW Tax & Bookkeeping at 217.679.1872 in Springfield, IL, with help filing your upcoming taxes.