When it comes to taxes, the IRS doesn’t just collect what’s owed—it penalizes those who don’t follow the rules. In 2025, the IRS is enforcing stricter penalties, and if you’re not careful, even a simple mistake could cost you thousands. Whether it’s failing to file, missing a payment, or misreporting your income, these penalties add up fast.
If you run a business, understanding these IRS penalties isn’t optional—it’s essential. Let’s break down what’s new, what’s costly, and how to stay ahead of the game.
1. IRS Late Filing & Late Payment Penalties Are Steep
If you miss a tax deadline, expect the IRS to hit you with penalties almost immediately. Here’s what you’re looking at:
- Failure to File: A staggering 5% per month of your unpaid balance, up to 25%. If you’re 60 days late, the minimum penalty is $485 or 100% of what you owe—whichever is lower.
- Failure to Pay: 0.5% per month on your unpaid balance, maxing out at 25%.
And here’s the kicker—if both penalties apply, the IRS will reduce the failure-to-file penalty by the failure-to-pay penalty, but you’re still paying extra no matter what.
2. Payroll Tax Mistakes? The IRS Doesn’t Forgive Easily
Payroll taxes are one area where the IRS has zero tolerance for mistakes. If you don’t deposit employment taxes on time, here’s what happens:
- 2% penalty if you’re up to 5 days late.
- 5% penalty if it’s more than 5 days but less than 15 days.
- 10% penalty if it’s more than 15 days late.
This is one of the most common ways businesses get into trouble with the IRS, and once penalties start rolling, they’re tough to reverse.
3. Accuracy-Related IRS Penalties: 20% to 75% Extra
If you make errors on your tax return—whether intentional or not—the IRS can assess penalties for:
- Negligence: A 20% penalty if you fail to make a reasonable effort to comply with tax laws.
- Substantial Understatement: Another 20% penalty if you understate your tax liability by more than 10% or $5,000.
- Fraud: A brutal 75% penalty if the IRS determines your understatement was fraudulent.
And if you’re caught willfully evading taxes? That’s a felony with fines up to $100,000 ($500,000 for corporations) and up to five years in prison.
4. The New Beneficial Ownership Information (BOI) Penalty
A new penalty in 2025 is the BOI reporting requirement, which is designed to track company ownership for compliance purposes. If you ignore this, the IRS will charge:
- $591 per day in civil penalties until the issue is fixed.
- Up to $10,000 in criminal fines.
- Possible prison time of up to two years.
Many business owners are unaware of this requirement, making it a sneaky way the IRS can hit you with massive fines.
5. How to Avoid IRS Penalties in 2025
Now that you know what’s at stake, how do you avoid these costly mistakes? Here are a few strategies:
✔ File on Time – Even if you can’t pay your full tax bill, file your return. The failure-to-file penalty is much worse than the failure-to-pay penalty.
✔ Pay What You Can – If you can’t pay everything, pay as much as possible to reduce interest and penalties.
✔ Keep Payroll Taxes a Priority – The IRS takes payroll tax violations seriously, so ensure you deposit them correctly and on time.
✔ Double-Check Your Return – Errors in tax filings lead to accuracy penalties, so always review your numbers.
✔ Use the First-Time Penalty Abatement (FTA) If Eligible – If you have a clean record for the last three years, you may qualify for IRS penalty relief.
Final Thoughts: The IRS Is Watching—Stay Compliant
The IRS isn’t getting any more forgiving in 2025. With penalties stacking up quickly, a little planning can save you thousands. If you’re not sure where you stand, now’s the time to review your tax strategy.
At Quartermaster Tax, we help businesses stay ahead of IRS penalties, maximize deductions, and keep more of their hard-earned money. Want to make sure you’re on the right track? Book a free tax strategy session today.
Don’t let the IRS take more than they should—get ahead of the game before it’s too late!