IRS PenaltiesEvery working person has to pay taxes. It is better and cheaper for you to file a tax return and pay taxes by the due date. If this is not done, then you will receive a notice from the IRS reminding you of your dues, and its associated interest and penalties. These tax penalties not only include the tax amount that has to be paid, but also the interest that this amount incurs if it is not paid by the due date. Even if you have been granted an extension of time to file returns, you will still be charged interest on the tax amount. Interest rates for the amount depend on the federal short term rate plus three percentage point. The present interest rate on underpayments of tax is 5%. You will also be charged interest on tax penalties on failure of filing returns and penalties because of negligence, fraud, etc. This interest starts accumulating from the due date of your return. When you are late in paying your taxes, the penalty amount is usually 0.5% of the unpaid amount for each month. This penalty amount is not more than 25% of the unpaid amount and is applicant to all unpaid taxes. However this penalty is in addition to interest that you are charged for late payments. You are also liable for tax penalties if you file a late return. The penalty is usually 5% of the amount for each month, unless you have a reasonable explanation for being late in your return. If there is a reasonable explanation, write it down and attach it with your return. There will be a chance of you avoiding tax penalties. There is also an estimated tax penalty that has to be paid if you underpay your estimated tax. This penalty is in the form of interest on the underpayment for the period the underpayment took place. Each payment incurs different penalties; so you may have to pay tax penalties on an earlier payment even if you had paid enough to cover the underpayment prior to that. In fact, if you don't pay sufficient tax by the due date of each payment period, you may have to pay a penalty even if the IRS has to pay you a refund on your filing your tax return. It is possible for you to ask for a waiver on tax penalties if the underpayment was because of a disaster, casualty or other unfortunate circumstances. You may also be waived of tax penalties if there is a reasonable cause during the first two years after you reach 62 or get disabled. To avail a waiver on tax penalties, you have to fill up the form 2210. |