Goodbye IRS refund payments – Here’s the $5,000 penalty you could be hit with in the 2025 tax season

As the tax season approaches, there are several pitfalls you need to look out for that may bring you severe penalties. An example of one such penalty is the IRS fine of $5,000 for filing what it considers a frivolous tax return. This is what you need to know about this kind of return and what you need to avoid.

What is a frivolous tax return?

A frivolous tax return is one that does not have essential information to determine how correct it is or one that is clearly inaccurate. This includes returns that:

• Omit necessary data, thus making it impossible for the IRS to determine the accuracy of the return;
• Contain entries that are clearly erroneous or misleading.
• Were filed for the purpose of delaying or hindering the tax law process, for which there is no justifiable reason.

Note, this penalty is intended to penalize those taxpayers who willfully try to subvert the tax system rather than those who make honest mistakes.

Read more: Goodbye to the $1,400 IRS stimulus check: no problem, this is the state that is offering stimulus checks of up to $850

How can you avoid the $5,000 penalty?

Here is what you can do to avoid any penalties: 

• Make sure your information is complete
• Make sure to check all your entries to avoid errors
• You can employ the services of a process if you do not fully understand how to file your return. 
• Avoid protest statements – Do not include language on your return that protests the legality of income taxes or the IRS.

What should you do if you receive a notice from the IRS?

If the IRS decides that your return is frivolous, they will contact you and provide you an opportunity to make it proper. Here’s what to do:

• Read the notice carefully: Clearly understand what was noted by the IRS.
• Amending your return: Make the necessary corrections and submit the amended return within the time, usually 30 days.
• Seek assistance: If you are not certain how to handle these issues, consult a tax professional.

Timely and accurate responses can help you avoid the $5,000 penalty.

Read more: Are tips taxable? Here’s how to understand the IRS rules during 2025 filing season

Are there other significant IRS penalties to be aware of?

Yes, you may incur penalties from the IRS such as: 

• Negligence penalty: You will be fined 20% for underpayment of taxes because of negligence or disregard of the rules. 
• Substantial understatement penalty: If you understate your tax liability by more than 10% of the correct tax or by greater than $5000 (whichever is greater), a 20% penalty may apply. 
• Late filing and payment penalties: 0 to 25% penalties for late filing or paying taxes. 

If you want to avoid these penalties and file your taxes on time, note the above suggestions.

How can you ensure compliance and avoid penalties?

Here are some suggestions on how to do so: 

• Know all the facts: Stay up to date with tax laws and regulations. 
• Keep records: Compile and keep proper records of all financial documents supporting your tax return. 
• File and pay on time: Be aware of the IRS deadlines for filing a return and paying tax. 
• Consult: Always reach out to qualified tax consultants whenever any question arises. 

This is a feasible guide. All these steps, if well taken oil, may help sail through the tax season without giving it a second thought and with minimum risk of penalty.

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