IRS Penalties and Interest

If you earn income, you’ll owe taxes to the U.S. government and possibly your state and local governments. If you don’t pay enough tax, you may be charged with an underpayment penalty, also referred to as an estimated tax penalty. Knowing your deadlines and responsibilities when paying and filing taxes IS CRITICAL to SAVING taxes. Penalties and interest can add up quickly.

If you earn income, you’ll owe taxes to the U.S. government and possibly your state and local governments. If you don’t pay enough tax, you may be charged with an underpayment penalty, also referred to as an estimated tax penalty. Knowing your deadlines and responsibilities when paying and filing taxes IS CRITICAL to SAVING taxes. Penalties and interest can add up quickly.

What Are IRS Penalties and Interest?

The IRS can bring penalties and interest against you if you fail to file your returns correctly, fail to file returns on time, or fail to pay taxes. Sometimes penalties and interest totals are higher than the dollar amount of the back taxes that are owed. Most Common Penalties-

Late Payment Penalties

 kicks in if you don’t pay any remaining taxes you owe for the prior year by April 15th or by the tax filing deadline. (1/2% per month, up to 25% + interest)

Failure To File Penalties

This onerous penalty applies if a taxpayer fails to file an Extension, and misses the April 15th deadline, OR misses the October 15th deadline with an Extension. (5% per month, up to 25% + interest, AND is combined with the Late Payment Penalty.

Underpayment of Estimated Tax Penalties

This penalty applies if taxpayers didn’t deposit during the prior year at least 90% of their current year tax bill, or 100% of what they owed the year before (110% if they made over $150K). The IRS doesn’t want to wait until April 15 for you to pay your taxes, they want you to make deposits throughout the preceding year so you don’t leave them high and dry. Also, the IRS prefers these payments to be made in equal installments. The bad news is that they will charge a penalty if less money is paid early and more was paid later.

Can you avoid these penalties?

The easiest way to avoid IRS penalties or interest is to submit clean tax returns each year and pay your taxes yearly.  

Can Tax Penalties Be Waived?

You may be able to have your penalties and interest removed or refunded if you can prove that you have reasonable cause or this is your first-time penalty Abatement. 

Here is the list of reasonable cause list you may qualify for

1. A death or illness in your family
2. An error that was caused by an IRS employee
3. A mailing mistake that involves using the wrong address or postage
4. Destruction of files by a catastrophic event
5. Death of a taxpayer
6. Serious illness of a taxpayer

IRS penalty abatement could be your best bet if you need to resolve an IRS tax debt. Please schedule your free consultation with Sarita to see if you qualify for abatement.