The late filing penalty is 5% per month, capped at a maximum of 25%. This means that if you owed $10,000 on your return, you would owe $12,500 after 5 months. The best rate of return or ROI (Return on Investment) that most people can expect is about 12%. The cost of late-filing your tax return is more than double that. Thus, it makes little sense to file your return late.
If you think you will be late, at least apply for an extension to file and pay what you think you may owe. Don't extend all the way to Oct. 15th, just to August 15th. Begin making sure your W2 withholding is correct and if you are self-employed make voluntary payments to avoid this problem.
The Underreporting Penalty
There are a multitude of penalties, including negligence, substantial understatement, and fraud. The negligence penalty is 20%, substantial understatement is 40%, and the fraud penalty is 75%. All calculated on the tax due. More than one of these penalties can be applied at a time.
There is also a Fraudulent Failure to File Penalty of 75% of tax due.
The moral of this story is to be honest in your taxes, and if you are trying to beef up your business deductions, do so only on the advice of a qualified accountant or tax attorney and with ample bookkeeping back-up for the positions taken. If you feel your adviser is overreaching, then ask for them to put the basis in writing so you have a record of why you took the position you did.