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The penalties associated with underpaying your taxes

On Behalf of | May 17, 2023 | Tax Audits

The government requires most individuals who have an income from any source to report that income and pay taxes on it. There are specific factors that determine the amount of taxes a Georgia taxpayer owes, including the total amount earned. Each individual must pay the full amount of taxes he or she owes to the government. Failure to pay the full amount, regardless of the reason, could lead to significant consequences.

Underpayment of taxes could result in a tax underpayment penalty from the Internal Revenue Service. This can happen if you do not pay enough, did not withhold enough from your wages or paid late. If you want to avoid this type of penalty, you will have to pay the full amount of last year’s taxes, or 90% of this year’s taxes.

Facts about taxes and underpayment penalties

It is not always easy to calculate the specific amount of taxes you owe, especially if you are a small business owner. If you are self-employed, a critical factor when calculating what you owe in taxes is your liability for Medicare and Social Security taxes. Specific types of businesses, such as sole proprietors, s-corporations and others must pay quarterly taxes. Each individual taxpayer, shareholder and business is responsible for calculating the correct amount due and paying in full.

Once it is evident that an underpayment has occurred, the tax payer should pay the difference as soon as possible. The specific amount of underpayment penalties is based on the amount owed and how long that amount has been due to the IRS. In addition to the amount of taxes owed and the underpayment penalty, the taxpayer must also pay interest on the penalty for as long as it is outstanding. In certain situations, such as a disaster or unusual circumstances, the IRS may waive the penalty.

Know how to protect yourself

Dealing with the IRS and any tax issue is complicated and concerning. These are difficult matters to navigate, but you do not have to face it alone. If you received noticed of an audit, received penalties that you don’t understand or are dealing with other tax-related legal concerns, you will benefit from seeking professional guidance regarding your options. Due to the complexity of tax laws, this assistance will be essential for your pursuit of a beneficial resolution.