Filing Income Tax Return
When Filing Income Tax Return Fails, One Faces the Consequences
There are certain consequences, most of the time punishable by law, face by an individual who fail to file the right report in computing the income tax return. Filing income tax return is a responsibility that should be obeyed religiously and be taken seriously. Civil penalties are executed to encourage voluntary compliance among individuals. The cost of enforcement is determined by produced revenues. Thus, individual taxpayers should become aware of the laws as well as tax return preparers.
The six most common categories of tax penalties are the following:
1. Failure of file income tax return- this happens when the tax payer didn’t file on or before the due date of filing. If the failure is proven to be due to willful neglect, then penalty follows. Such penalties are usually imposed on individuals, fiduciaries, and corporations. There are certain considerations and extensions given to individuals who have reasonable explanations like when one is hospitalized or involved in Armed Forces combats.
2. Failure to pay the taxes- assessment is made to determine if individual failed to pay the taxes. Even if reasonable cause or no willful neglect takes place, one is still responsible in paying returns. If an individual can not pay the tax in full, there is still need for filing income tax return. Other payment options will be then given to the individual.
3. Inaccuracies-related penalties- such penalties are given to individual who have shown complete negligence. If there is a substantial understatement of tax returns or substantial valuation of misstatement, penalties are given. If the act is purposive, the individual faces tax evasion. To prevent having such penalties, the individual should prove that he or she acted in good faith and is able to present evidences to show. Disclosing a transaction can be considered as good faith.
4. Civil fraud penalties- underpayment of tax is proven under this penalty. Though assessment is still performed, it will be called fraud if the individual involved in intentional action and not merely an oversight. If there are convincing evidences that the fraud is incurred, the taxpayer is considered to be fraudulent. Some factors that are often cited as indications of fraud are: understatement of income, concealment of assets, cash transactions, inadequate records, failure to cooperate with tax authorities, and engagement in any illegal activities.
5. Estimated tax penalties- this penalty is given to individuals who underpay any installment of estimated tax due. Even if the taxpayer files and submit an extension, there will be no extension given. Paying the tax on time is what matters most. Afterwards, interests and penatlties are computed to be assessed to determine the cost of penalty.
6. Tax return preparer penalties- the person preparing the tax return is called tax preparer. Tax preparer prepares reports and gives assistance to the taxpayer. Reporting of inaccurate records is a violation and intentional disclosure of tax made by the tax preparer are both punishable by law and is responsible to pay the penalty.
To reiterate what has been said, the penalties are executed to encourage taxpayers and tax preparers to follow the laws regarding filing of income tax return.
