# Entrepreneur of the Week - Post # 3
One of the most common thoughts that comes to people's minds when they hear the word "IRS" is "the IRS is not messing with!". Apparently the main reason for this is the draconian fines that may apply to anyone who accidentally gets involved with the IRS unnecessarily.
Indeed, as someone who files thousands of U.S. tax returns each year I can say with absolute certainty that the fines that the IRS may impose on taxpayers are certainly a very unpleasant experience.
The best way to avoid these fines is to first understand what the common types of fines are, when they are activated and what can be done to avoid them.
In the next post I have summarized for you the most common types of fines that investors may encounter after submitting a late U.S. tax return and I will try to provide a number of tips to help you avoid these fines.
First a little order is made in order to neutralize prejudices:
Not every report submitted late will automatically incur fines for late submission!
However, there is no reason to be complacent and it is always important to make sure to submit the report on the legal date and if possible then as early as possible in order to avoid fines.
In the case of a single report filed late the fine in the US will be calculated in most cases on the basis of the unpaid tax liability at the time of filing the report, so the higher the time the tax liability remains to be paid the more “painful” the fines will be.
The following are the most common types of fines that the IRS imposes for late submission of individual reports and how they are calculated:
A. Failure to File Penalty The penalty rate is 5% for each month (or part of the month) that has passed from the deadline for submitting the report (up to 5 months). A report submitted 60 days or more late will be subject to a minimum fine depending on the lower of the following amounts:
a. 100% tax liability in the report
b. $ 330
B. Failure to pay late tax liability ("Failure to pay penalties"), in general the full tax liability must be paid by 15/4 or 15/6 (in the case of those outside the US) of the following year even if the report has not yet been filed and You have an extension to submit. Failure to pay the full tax liability will result in a penalty for late payment at the rate of 0.5% for each month (or part of a month) that elapsed from the last date for making the payment to the date of actual payment.
third. Failure to pay proper estimated tax advances (Failure to pay proper estimated tax) Some people are required to pay the tax liability on a quarterly basis during the tax year, with the final payment to be made no later than January 15 of the following tax year. Failure to pay such advances will result in a fine (more common in the case of a U.S. citizen who has filed a late tax liability report).
In order to understand who owes advance payments, you can use the chart attached to the post.
D. Interest will be calculated on the basis of the tax liability that has not yet been paid from April 15 of the following tax year until the actual payment date.
This is of course just a partial list of the most common fines that apply to individuals who file late reports, there are additional but less common types of fines that may materialize with late filing.
In order to be careful and avoid fines, it is always recommended to submit the reports on time (for those who live in the US - until April 15 of the following tax year, for those who live outside the US and do not receive a salary from an American employer - until June 15 of the following tax year)
If you have not been able to submit the report in time, it is very important to apply for an extension to file your U.S. tax return. An extension is granted automatically but is only valid in cases where you submitted the extension before the deadline for submitting the report.
It is important to note that an extension for filing a tax return does not constitute an extension for the payment of the tax liability and in order not to accrue fines for late payment and interest the full tax liability in the US must be paid upon filing for the extension.
However, there is no obligation to pay the full tax liability upon application for extension.
Filing an extension will automatically date the reporting date to October 15 of the following tax year. A person residing outside the United States is entitled to an additional extension of two months (until December 15 of the following tax year), but must submit an additional application for extension before October 15 in order to receive it.
Investors through LLC:
In the case of anyone investing through an LLC one should pay attention and be careful, as every year the report for the LLC should be submitted on time. Failure to file an LLC report on time may result in heavy fines.
LLC entity owned by a single investor who is not a U.S. citizen:
Reporting of financial transactions between the foreign owner of the LLC is required by June 15 of the following tax year. Failure to file such a report on time may result in a heavy fine that can reach $ 25,000 (!).
Please note, such a report is required for the first time since 2017. From my experience in recent years where the report is required in reporting I have not seen the IRS automatically apply this fine for late submissions, so a late submission report has a very high penalty potential, but the consolation is that the fine is not automatically received so far , At least from what I managed to see (tap, tap) even reports submitted late did not receive a penalty notice automatically (it is better not to build on the situation that it will continue like this, just submit them on time…)
Entity owned by two or more investors dissolved as a partnership:
It is very important!!!! It is highly recommended to submit the report or extension to submit the report by 15/3 of the following tax year (possible in some circumstances also until 15/6 of the following year but it is always better to submit the application for extension before 15/3).
Extension for submitting the report allows the report to be submitted until 15/9 of the following tax year (for the benefit of those who need to submit a partnership report for 2019 and have not yet submitted - the deadline for submitting the report for this year, including the extension is today)
Failure to submit a report on time will result in an automatic fine of $ 210 per partner for each month of delay (up to a maximum of 12 months)! In this case I can tell you that in my great experience any report that is submitted late “snatches” a fine, these fines are very difficult to cancel, so do yourself a favor and just report on time, especially if you are investing as a partnership!
This is it, I hope you enjoyed reading and I was able to put you in order with some fines and give tips for proper conduct in this matter. This is of course only a partial list of the fines that the IRS may impose, the purpose of the post was to present the main and relevant types of fines to foreign investors and / or U.S. citizens required to file an annual tax return with the IRS.
The aforesaid is not presented as a substitute for professional advice from an accountant and is only general information, which does not constitute binding professional advice and should not be relied on in any form. Any action taken according to the information and details stated in this post is the sole responsibility of the user. The purpose of the post is to help users expand their personal knowledge base only and allow them to know more, before turning to an accountant or any other expert.