Tax Penalty
A fine for late filing, late payment, or underpayment of taxes.
Tax penalties are charges the IRS imposes for non-compliance. The failure-to-file penalty is 5% per month (up to 25%), the failure-to-pay penalty is 0.5% per month (up to 25%), and the estimated tax underpayment penalty is based on the federal short-term rate plus 3%. Penalties compound with interest, and first-time penalty abatement may be available.
Example
A business owner files three months late with $10,000 owed—the failure-to-file penalty alone is $1,500 (5% × 3 months), plus interest and failure-to-pay penalties.
Why It Matters for Your Business
Tax penalties add up fast and are entirely avoidable with timely filing and payment, making calendar management a critical part of business operations.
Practical Tips
- •File on time even if you can't pay—the filing penalty is 10x the payment penalty.
- •Request first-time penalty abatement if you have a clean compliance history.
Related Terms
More Taxes Terms
Adjusted Gross Income
Gross income minus specific deductions like retirement contributions.
Tax Audit
An examination of tax returns by the IRS to verify accuracy.
Capital Gains
Profit from selling an asset for more than its purchase price.
Capital Loss
Loss from selling an asset for less than its purchase price.
Tax Deduction
An expense that reduces taxable income.
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