Penalties and Interest: Understanding Your Tax Liability

The IRS closely scrutinizes tax returns for accuracy, and penalties can arise for various reasons. Here's a breakdown of common penalties and how they're assessed:

• Failure to File: If you don't file your tax return by the due date (or the extended due date if you've applied for an extension), you'll face a late filing penalty of 5% of the unpaid tax per month, with a maximum penalty of 25%.
• Failure to Pay: If you don't pay the taxes reported on your tax return by the original due date, you'll face a late payment penalty of 0.5% per month, with a maximum penalty of 25%. You'll also owe interest on the unpaid amount.
• Failure to Pay Estimated Taxes: If you don't pay enough taxes throughout the year through quarterly estimated payments or withholding, you could be assessed an underpayment penalty of 7% for smaller underpayments or 9% for large corporate underpayments.
• Bad Check: If your check or other form of payment is not honored by your bank, penalties may apply.