One of the big sticks that the Internal Revenue Service wields is penalties for our mistakes or willful disregard of tax laws.
Some of the penalties were increased in 2016 thanks to law changes. Others are hiked each year if inflation so warrants.
Here's a roundup of some major tax penalties changes ahead in 2017.
Don't file, pay more: The biggie for individual taxpayers is the charge for late filing.
In 2016, if you filed a return more than 60 days after the due date or any extension to file that you got, then you faced a penalty of the lesser of $135 or 100 percent of your unpaid tax.
Starting in 2017, the Internal Revenue Service is getting a bigger fee from your tardiness.
Thanks to a provision in Trade Facilitation and Trade Enforcement Act of 2015 that was signed into law in February, if you were more than two months late filing your 2016 Form 1040, you were slapped with a penalty of $205 or 100 percent of your due tax, whichever amount was smaller.
Beginning in 2017, thanks to inflation, if you fail to file a tax return within 60 days after it's due (including extension time), you'll get slammed with a penalty charge of $210 or 100 percent of the amount of tax due, whichever is less.
Tax pros, too: While we individual taxpayers will be penalized for our tax filing failures, the folks we seek tax help from also face possible financial consequences if they knowingly understate a taxpayer's liability.
In situations where a tax preparer comes up with a filer's tax due that is less than it should be and the reason is because of what the IRS deems is an "unreasonable position," the tax preparer could be hit with a penalty of $1,000 or 50 percent of the payment the preparer got for filing the return, whichever is greater.
Basically, the IRS wants to discourage the use of tax strategies that a preparer knew, or reasonably should have known, were not realistic.
And where a tax preparer uses, in the IRS' estimation, willful or reckless conduct to get the taxpayer's liability to an amount lower than it should be, the penalty increases to the greater of $5,000 or 50 percent of the income from the return or claim for refund.
More tax preparer penalties: In addition to the penalties for understating clients' tax bills, there's a variety of other fines a tax preparer could face for failing to complete some other tasks.
These amounts are adjusted for inflation each year. For 2017, the amounts that tax preparers could face are:
|Tax Preparer Action||Penalty per Return or Refund Claim||Maximum Penalty|
|Fails to furnish a client with a copy of his/her return.||$50||$25,500*|
|Fails to sign return. When a preparer is paid to do taxes, he/she must sign that 1040 (or 1040A or 1040EZ).||$50||$25,500*|
|Fails to furnish identifying number. This goes along with the signature mandate.||$50||$25,500*|
|Fails to retain a copy of the return or other filing list.||$50||$25,500*|
|Fails to file correct information returns.||$50 per return
and item in return
|Negotiates of a taxpayer's check. This is a fine for a preparer who receives a taxpayer's refund check, endorses it and deposits it as a third party check, even if the preparer and taxpayer have agreed to the process. Basically, the check negotiation fine is aimed at return preparers who charge based on taxpayer refund amounts.||$510 per check||No Limit|
|Fails to be diligent in determining a filer's eligibility for the American opportunity tax credit, the child tax credit, and/or the Earned Income Tax Credit (EITC).||$510 per check||No Limit|
*Increase of $500 from 2016 maximum penalty amount
Passport revocation: Finally, if you're planning on some international travel, you best pay the U.S. Treasury before you buy that transcontinental airfare.
Back in December 2015, the Fixing America's Surface Transportation Act, or FAST Act, became law along with its authorization of the State Department to revoke, deny or limit passports for anyone the IRS certifies as having a seriously delinquent tax debt.
When this tax law took effect in 2016, the trigger was $50,000 in overdue taxes. It stays at that amount in 2017 thanks to low inflation.
Paying taxes is bad enough, so make sure you don't do anything that will force you to pony up even more in penalty payments.
Wrapping up inflation amounts: Inflation affects every part of our lives, including taxes. These penalties that are adjusted each year to keep them in line with how prices generally are going up are the final part of a 10-part series on tax-related inflation adjustments for 2017.
Welcome to Part 9 of the ol' blog's series on 2017 inflation adjustments.
You can find links to all 2017 inflation posts in the series' first item:
Income Tax Brackets and Rates.
Today we look at changes to the foreign earned income exclusion amount
and how that inflation adjustment affects the housing tax break
available to U.S. taxpayers working abroad.
Note: The 2017 figures apply to 2017 returns that are due in 2018.
For comparison purposes, you'll also find 2016 amounts to be used
in filing 2016 returns due next April.
My completion of the series is cause for celebration on my part (and I hope yours, too, faithful readers) on this final day of 2016. Sorry for the delay. The IRS released its annual inflation adjustments in late October, but other tax items just kept popping up that demanded my attention. Plus, I also had to sandwich in some bill-paying work in there.
But as the saying goes, better late than never. Even with tax filing, although you'll pay a penalty!
And while this final inflation-focused post technically is #9 (#10 on tax deductible mileage rates leap-frogged it), today's rounding out of the series also means that the full collection of 10 tax year 2017 inflation posts (note the link to the first one, which has all the other post links in the blue box above) makes 10 this week's, and the year's final, By the Numbers figure.
You also might find these items of interest:
- How to avoid estimated tax penalties
- Missing the Dec. 31 RMD deadline could be very costly
- 4 steps to take now if you missed the tax filing deadline