According to one of the leading accounting firms in Virginia, the majority of taxpayers do no purposely invite tax penalties, but a lot of them who are penalized are just not aware of the penalties or the possible impact on their wallets. The following are some of the more frequently experienced penalties:
- RMD (Required Minimum Distribution) Penalty
In order to avert a person from investing in tax-deferred retirement plans, including conventional IRAs, but not at all withdrawing funds from the plans, retirees must take an RMD each year after reaching the mandatory RMD page. The compulsory distribution age has lately changed from 70 ½ for years before 2020 to 72 in 2020 and later years.
As per a certified CPA in Virginia, failing to take the correct minimum distribution leads to a penalty of 50% of the difference of what should have been withdrawn and what was actually withdrawn.
- Late Filing Penalty
If a return is filed after the due date, including extensions, a late filing penalty of 4.5% per month applies. The standard due date for returns is April 15 of the subsequent year. Due to COVID-19, the due date for 2019 returns was extended to July 15, 2020, and the penalty for filing a late 2019 1040 return doesn’t begin after July 15, 2020.
You must hire one of the best accounting services in Arlington Virginia if you’ve failed to file your 2019 return and didn’t file an extension by July 15th, 2020.
Note that the qualified COVID-19 distributions are subject to income tax but escape the early distribution penalty. However, this special COVID-19 provision allows a taxpayer to spread the income from a corona virus-related distribution over a 3-year period, and the distribution can be re-contributed during the three-year period.