There could be several reasons the IRS issues a notice of an underpayment or a late penalty.
First, ensure that the IRS has accurately recorded all the payments you made and applied them to your account. Additionally, verify that the correct amount of payments was reported and match the actual payments made.
Below are some common reasons the IRS issues penalties
- The payments reported on your return or reported as paid in Heard were not actually paid, causing the IRS to issue an underpayment notice because the payment was missing.
- The IRS didn't credit the payment before the notice was sent.
- The IRS is missing payments on your account.
- You didn't pay your estimated tax payments on time.
Let's also clarify what a tax extension means: The standard tax extension allows you to file your tax return after the usual deadline. However, it doesn't buy you more time to pay any taxes you may owe. That means that if you don't pay your tax balance by the filing deadline, you'll be subject to penalties and interest.
The penalties are not the result of late filing on Heard's part but stem from underpayment of taxes. The payments include quarterly tax estimates that Heard provided during the tax year, which contributed to the underpayment penalties you are receiving now.
At Heard, we emphasize that the figures we provide are estimates, carefully calculated using all available information to ensure accuracy to the best of our ability. However, these estimates do not factor in certain variables, such as retirement and investments. While the IRS would ideally provide precise amounts for everyone, we know that isn’t the case.
Unfortunately, it's not uncommon for the IRS to make adjustments after it receives your return due to underpayment penalties and/or interest not accounted for during tax preparation.
We strongly advise our clients to follow the estimates we provide and, if feasible, pay a little extra. This approach minimizes the risk of underpayment and ensures potential refunds if the estimate exceeds the actual amount owed. While our estimates have proven beneficial to many clients, there may be instances where they are either slightly underestimated or overestimated. In those cases, we urge clients to use their best judgment when making a payment.