5 IRS Penalties You Want to Avoid
Careless mistakes at tax time can leave people paying more money to the IRS. Those mistakes are avoidable through awareness of and adherence to the tax rules, including deadlines. Learn the five most common IRS penalties and how to avoid them.
When a significant natural disaster hits – such as a hurricane, earthquake, tornado, flood, wildfire, blizzard, or the like – the IRS will extend upcoming federal tax deadlines for affected taxpayers if a federal disaster is declared. The extended due dates apply to most federal tax returns and payments, including those for income taxes (including estimated tax payments), payroll taxes, and excise taxes. If you’re impacted by a natural disaster, check our IRS Disaster Relief page to see if you qualify for an automatic tax filing or payment extension.
Key Takeaways
- You can avoid late filing penalties of up to 25% of your tax bill simply by filing your taxes or requesting a tax extension by the tax deadline.
- Signing your tax return will ensure it's accepted by the IRS. The IRS won’t accept your tax return if it isn't signed, and you may be subject to penalties.
- By keeping good records of your business-related mileage, you can avoid a 25% accuracy penalty on top of the additional tax and interest for an incorrect mileage deduction.
- If you prepare your taxes by hand, avoiding math errors will keep you from having to pay additional taxes owed plus interest that can result from underpayment of your taxes.
Nobody sets out at tax time to figure out how to pay more money to the IRS. But careless mistakes can leave many people doing just that. Some IRS penalties are for very common mistakes. Those mistakes are avoidable through awareness of and adherence to the tax rules, including deadlines.
1. Late filing penalties
The first thing to remember is the date: April 15, 2025 for the 2024 tax year. Mark it on your calendar, you may even want to circle the date in red.
Most people don't like having to file a tax return, but we all know there is a deadline to file, or at least to request a tax extension. Avoid being in so much angst over taxes that you just don’t file. The IRS knows you exist and they get copies of all those W-2s and 1099s you received in the mail, so they know you made some money last year.
Late filing penalties can add 25% to your tax bill. You also have to sign your return. Forgetting to sign a tax return is one of the most common mistakes taxpayers make. The IRS won’t accept your tax return if it is not signed, and that is just the same as not filing it at all.
2. A tale of two mileage rates
If you’re self-employed, and you intend to deduct all the wear and tear you put on your car last year getting the job done, it has to be done according to the new rules. You need to be accurate in your record keeping to avoid penalties.
Should your creative bookkeeping set off red flags to IRS employees, you will have to provide a journal detailing every mile you claimed on your return. You'll also have to turn over receipts for all other questions they may have on your entire tax return.
If you are unable to prove your side, there can be a 25% accuracy penalty on top of the additional tax and then the interest on the entire amount.
TurboTax Tip:
When taking the deduction for your home office, be sure to deduct the exact area(s) you use exclusively for business to avoid the deduction being disallowed.
3. Penalties for math errors
If you’re not good at math, then you had better sharpen your skills if you are preparing your taxes by hand. Math errors are very common on pen-and-paper tax returns, so check and re-check your math.
If the math error results in you paying less tax than you should, the IRS is likely to require that you pay the additional amount of taxes owed plus interest accrued since the due date of the return.
The good news is, when you use TurboTax, we handle all the math and we guarantee that our calculations are 100% accurate.
4. Home office deduction penalties
If you run a home daycare service, use part of your home as an office, or designate a closet or other area to store inventory, you may confidently take a deduction for your home office.
The key is that you use your home office ‘exclusively and regularly’ as your principal place of business. You should only deduct the exact area(s) you use exclusively for business, so if your office doubles as a spare bedroom, you can only deduct the portion of the room used for business.
If the IRS determines the taxpayer does not qualify for the home office tax deduction, the damage can be twofold.
- First, because the deduction is taken on Schedule C, it may raise the taxpayer’s taxable income.
- Second, if the reduction in expenses leads to more income on the Schedule C, that amount is also subject to self-employment tax, which is 15.3% in most years.
5. Some not-so-charitable penalties for charitable donations
They say it’s always better to give than to receive. In the case of income tax filing that is true. Charitable contributions can lead to additional tax deductions.
In donating clothing and other goods to a charitable organization, the donor needs to receive an itemized slip from the organization listing what has been donated and the condition of the items.
If you are selected for an audit, the deduction may be denied because there’s nothing specific listed on the slip, like the quantity and condition of the items. If denied, the filer will have to pay the additional taxes and perhaps a 25% accuracy penalty on top of the additional tax, and then the interest on the entire amount.
In addition, the deduction may also be denied if the charitable contribution does not meet IRS guidelines for a qualified donation or charity.
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