If possible, you never want to pay IRS penalties and interest. Doing so will put you in a bad position. Not only do you owe the original amount, but when you add penalties and interest on top of that you are going to find yourself in a bad spot.
There are many situations in which the IRS has the right to add penalties and interest to your balance. Knowing how to avoid these situations can go a long way in helping you save money and avoid future issues with the IRS.
Not Filing vs. Not Paying
Do you know which IRS penalties and interest are most serious?
It is a good idea to know what you are up against. This will help you better protect yourself from issues in the future. The most common penalties are for paying taxes late and filing late. If you avoid both of these things you can also avoid IRS penalties and interest.
If you pay your taxes late you are subject to a failure to pay penalty of .5 percent of your unpaid taxes, each month after the due date. Fortunately, if you paid at least 90 percent of your tax liability this penalty will not apply during the automatic six month extension to file.
The day after a demand for immediate pay is issued by the IRS the rate of your penalty increases to one percent per month.
Those who filed on time will face a reduced penalty of .25 percent per month during any month in which a payment plan is active.
Failure to file penalties may sound bad enough, but things can get worse.
If you do not file your return by the due date you may be slapped with a failure to file penalty. This penalty is five percent for each month that your return is late. The only good thing is that this penalty is capped at 25 percent. The failure to file penalty is based on the amount of tax not paid before the due date.
Did you file your return more than 60 days after it was due? In this case, the minimum penalty is $100 or 100 percent of the tax due.
In short, you will pay a more severe penalty if you do not file your tax return on time. Many people find this hard to believe, but it is true.
Are you facing IRS penalties and interest?
If so, you may want to hire a tax professional with experience dealing with this situation. You may be eligible for penalty abatement. This won’t do anything to the original amount of money that you owe, but can definitely save you on the cost of penalties.
To avoid IRS penalties and interest, make sure you file your return on time every year. Along with this, pay any liability in full or set up an installment agreement.
Although the failure to file penalty is more serious, you do not want to get stuck paying any extra money to the IRS – regardless of the reason.
About the writer:
Denise N. Fyffe is a published author of over 40 books, for more than ten years and enjoys volunteering as a Counselor. She is a trainer, publisher, author, and writing mentor; helping others to achieve their dreams.
Check out her book The Caribbean Family
The family is the genesis of all societies. Every culture has its distinct rules by which a family is governed, and the Caribbean family is no exception. Those rules differ within each group; for the Indians, Chinese, and Africans. Making up most of the population in the Caribbean, African families have spawned several sub-units or types; some of which are unique to the African culture. This book explores each family type and their history within the Caribbean.
Available at all online book retailers and Amazon.com