The Internal Revenue Service (IRS) imposes fines on thousands of American taxpayers each year for late filing of federal tax returns. A seemingly insignificant mistake might have serious financial repercussions, such as monthly fines, interest that has accumulated, and potential legal issues.
You must legally file your taxes by the deadline, or ask for an extension if needed, regardless of whether you are a person making money or a business doing business in the United States. Steep fines may follow failure to comply, but if you can provide good justification, you may be able to contest the penalty or obtain relief in certain situations.
Who Must File Taxes and What Are the Penalties?
Individuals must file a federal tax return if their income meets or exceeds the minimum filing threshold, which depends on age, filing status, and gross income. This includes employees, freelancers, gig workers, landlords, and anyone receiving investment income.
Businesses must also file, including:
- C Corporations (Form 1120)
- Partnerships (Form 1065)
- S Corporations (Form 1120-S)
- Sole proprietorships (Form 1040 with Schedule C)
Want to avoid an IRS audit in 2025?
Focus on clean, accurate filing, especially if you’re a high-income earner or self-employed. Here’s how:1. Keep detailed records: receipts, logs, digital files
2. Only deduct legitimate business expenses
3. Report all income—W-2s, 1099s,…— INVESTOR FRIENDLY CPA® (@I_F_CPA) May 7, 2025
A penalty of 5% of the unpaid taxes per month, up to a maximum of 25%, may be assessed by the IRS if you do not file your return on time. Depending on the tax year and type of return, the IRS imposes a minimum penalty if the delay surpasses sixty days:
- After 12/31/2024: $510
- 2024: $485
- 2023: $450
- 2020–2022: $435
- 2018–2019: $210
The tax due, less any timely payments and any appropriate credits, is the basis for calculating these penalties. The filing penalty is lowered in situations where both failure-to-pay and failure-to-file penalties are applicable in order to prevent accumulating both at full rate.
You can read more about how penalties are calculated on the official IRS page for failure-to-file penalty.
You don’t have to pay estimated tax for the current year if you meet ALL THREE of the following conditions:
* You had no tax liability for the prior year;
* You were a U.S. citizen or resident alien for the whole year;
* Your prior tax year covered a 12-month period.— Jeffrey B. Travis (@JeffTravis_CPA) May 6, 2025
How to Avoid, Reduce, or Dispute an IRS Penalty?
The IRS will send you a letter or official notice explaining the amount owed and the basis for the penalty if you get a penalty notice. You can choose from a number of options:
- To avoid additional interest, pay the penalty in full.
- Show a valid justification for the penalty relief request (e.g., illness, disaster, or reliance on faulty professional advice).
- If you are unable to pay the entire amount, establish a payment plan.
- By mailing a signed explanation and supporting documentation to the address shown in the IRS notification, you can contest the penalty.
It’s better to get in touch with the IRS directly to settle the matter before more fees are incurred if you haven’t gotten a notification but think you could be subject to a penalty.
Even if you are unable to pay the entire amount, filing your return on time is the best way to avoid these penalties. By filing, you can access resolution options like payment plans and relief programs and avoid late filing penalties.
