There could be several reasons the IRS issues a notice of an underpayment or 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 were 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 due to the missing payment.
- The IRS didn't credit the payment in time before the notice was sent out.
- The IRS is missing payments on your account.
- The estimated tax payments were not paid 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 a result of late filing on Heard's part but are due to the 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, it’s important to emphasize that the figures we provide are estimates and carefully calculated using all available information to ensure accuracy to the best of our ability. However, it’s crucial to note that these estimates do not factor in certain variables, such as retirement and investments. While ideally, the IRS would provide precise amounts for everyone, we realize that this isn’t the case.
Unfortunately, it's not uncommon for the IRS to make adjustments after your return is received due to any underpayment penalties and/or interest that was not accounted for during tax preparation.
We strongly advise our clients to adhere to the estimates we provide and, if feasible, consider paying a little extra. This approach minimizes the risk of underpayment and ensures potential refunds if they exceed 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 such cases, we urge our clients to exercise their best judgment when making payment.