8 Ways To Get Penalized by the IRS

There are two ways that the IRS can assess a penalty to you – failure to file, or failure to pay; and it’s not out of the question that you could be subjected to both types of penalties.  The IRS recently issued IRS Tax Tip 2011-74, which lists out eight facts they’d like you to know about these penalties.

Eight Facts on Penalties

  1. If you do not file by the deadline, you might face a failure-to-file penalty.  If you do not pay by the due date, you could face a failure-to-pay penalty.
  2. The failure-to-file penalty is generally more than the failure-to-pay penalty.  So if you cannot pay all the taxes you owe, you should still file your tax return on time and explore other payment options in the meantime.  The IRS will work with you.
  3. The penalty for filing late is usually 5% of the unpaid taxes for each month or part of a month that a return is late.  This penalty will not exceed 25% of your unpaid taxes.
  4. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.
  5. If you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1% of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid.  This penalty can be as much as 25% of your unpaid taxes.
  6. If you timely filed a request for an extension of time to file and you paid at least 90% of your actual tax liability by the original due date, you will not be faced with a failure-to-pay penalty if the remaining balance is paid by the extended due date.
  7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5% failure-to-file penalty is reduced by the failure-to-pay penalty.  However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.
  8. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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