The amount of information you have to report and numbers you have to crunch when filing a tax return means that honest mistakes are all but inevitable. The Internal Revenue Service generally forgives small mistakes that don't affect the amount of tax you pay, but errors that cause an underpayment of tax can result in tax penalties even if the mistakes were unintentional. Not surprisingly, the IRS comes down a lot harder on those that commit fraud.
Minor errors you make on an income tax return are usually not something you have to worry about. According to the IRS, the agency is able to correct small math errors for you and may be able to request missing forms needed to complete your return so you don't have to file a new one. The most common mistakes on tax returns include incorrect or missing social security numbers, computation errors and listing information on the wrong lines.
If an error on your tax return causes you to pay less tax than you actually owe, you may face tax penalties. The IRS charges a late payment penalty of 0.5 percent for each month a tax remains unpaid after the due date, up to maximum of 25 percent. A substantial understatement of income, which the IRS defines as the greater of $5,000 and 10 percent of the tax required to be shown on your return, can lead to a 20 percent penalty. The IRS can also slap you with a 20 percent penalty for negligence, such as carelessly or recklessly disregarding tax rules when fling a return.
Civil and Criminal Penalties
Although honest mistakes can result in tax penalties in some cases, you face harsher penalties if you introduce errors into a tax return on purpose. If you are found to have made mistakes on a tax return intentionally, you can be hit with a 75 percent tax penalty on the underpaid amount for civil fraud. Illegally evading by misrepresenting can also result in criminal penalties. According to Cornell University Law School, individuals found guilty of tax evasion can face fines of up to $100,000 and up to 5 years in prison.
Sometimes mistakes on a tax return cause you to pay more tax than you should. For example, if you choose the wrong tax filing status or forget to claim tax breaks, you might pay more than you need to. The IRS lets you file an amended tax return using Form 1040X, which can allow you to change your filing status and claim tax deductions and credits that you missed on your initial return.
- Internal Revenue Service: Topic 303 - Checklist of Common Errors When Preparing Your Tax Return
- Internal Revenue Service: IRS Offers Tips on How to Fix Errors Made on Your Tax Return
- Internal Revenue Service: Topic 653 - IRS Notices and Bills, Penalties and Interest Charges
- FindLaw: Tax Penalties -- Quick Reference Guide
- US Code: 26 USC § 6662
- Cornell Law: Tax Evasion
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.