What If You've Been Doing Taxes Wrong?
If you have made errors on your tax return, the consequences depend on the seriousness of your errors, and whether you overestimated or underestimated your tax burden. If you overestimated your tax burden, you may be entitled to a refund. If you underestimated your tax burden, you may be assessed penalties. An unpaid tax bill can eventually result in seizure and auction of your property by the Internal Revenue Service.
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Form 1040X
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If you discover that you have calculated your tax incorrectly, file IRS Form 1040X, the amended tax return. Form 1040X requires you to list each item on your original tax return and each item in your amended tax return -- even items you are not correcting. You will need to provide an explanation for any changes. If the IRS owes you a refund, it will be sent to you in a few weeks. If you underestimated your tax burden, you will be liable for penalties. However, the IRS may allow you to pay your overdue tax bill in installments. Underpayment interest rates are determined by the federal short term rate plus 3 percent for taxpayers. For the first quarter of of ,the sum total would be 3 percent.
Late Penalties
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IRS penalties for late filing will not apply to you if you filed your tax return on time but miscalculated your tax burden. IRS penalties for late payment, however, will apply. The IRS will apply a penalty of 0.5 percent of your overdue tax for every month that you fail to pay in full, up to a maximum of 25 percent of the amount due.
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Negligence
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If your error is serious -- defined by the IRS as underestimating your tax burden by 20 percent or by $5,000, whichever is lesser, the IRS may -- but is not required to -- assume negligence on your part. If you are found negligent, you will be assessed a penalty of 20 percent of the overdue amount. Even if you underestimated your tax burden by less than this amount, the IRS may still find you negligent if you are culpably careless, or if you blatantly disregard tax laws -- by taking the standard deduction and itemizing your deductions at the same time, for example.
Frivolous Tax Return
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The IRS will fine you $500, in addition to the overdue amount and any other applicable penalties, if it concludes that you filed a deliberately frivolous tax return. A return that doesn't include enough information for the IRS to calculate your tax due is likely to be considered frivolous, as is a tax return that relies on irrational tax arguments, such as denying the the IRS has jurisdiction to tax U.S. citizens living overseas, for example.
Tax Evasion
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You commit tax evasion if you intentionally and deceitfully underestimate your tax burden or try to hide assets from the IRS. Tax evasion is a federal criminal offense punishable by up to five years in prison and a $100,000 fine -- $500,000 for corporations.
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References
- Photo Credit tax forms image by Chad McDermott from Fotolia.com
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Comments
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Keeping accurate accounting records for your company requires an eye for detail. It is a process that requires close work with your accountant or bookkeeper to not only effectively manage your company's books but also to ensure timely submission of tax filings.
