No one wants the undesirable consequences of failing to pay taxes on time. Missing your first tax deadline will lead to penalties and interest from the IRS. So, if your back taxes have gone unpaid for years, then you’ve likely amassed a much larger tax debt already. And the longer you wait to pay it off, the larger that debt will become.
Here’s a look at some of the most common tax penalties that you may be facing.
Common Tax Penalties
Failure to Pay
Failing to pay what you owe to the IRS can lead to a penalty of 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid. The Failure to Pay penalty won’t exceed 25% of your unpaid taxes. In addition, the IRS will also charge interest on penalties. Interest on unpaid tax is compounded everyday, with a rate of the current federal short-term interest rate plus 3%.
If the IRS finds that you owe tax you didn’t report on your return, they’ll send you a notice with the amount due and a due date. Due dates are typically 21 calendar days after they send the notice or ten business days after they send the notice if the tax amount you owe is $100,000 or more.
Failure to File
The Failure to File Penalty is applied if you fail to file your tax return by the due date. The Failure to File Penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late. The failure to file penalty is much more severe than failure to pay, but it maxes out at five months or 25%. If the taxpayer files their return more than 60 days after it was due, there’s an additional minimum penalty for late filing which is the lesser of $435 or 100% of the tax owed.
Early Withdrawal From Retirement Accounts
If you’re considering withdrawing funds from your retirement account, prepare to face heavy penalties from the IRS. Tax-advantaged retirement accounts, including IRA and 401(k), are structured so that people can withdraw funds when they reach the age of 59. With a few exceptions, the IRS imposes a 10% penalty on any amount withdrawn before then.
Abatement of IRS Penalties and Interest
Seeking tax help from a tax professional may help you reduce your penalties, potentially decreasing your total debt considerably. Your attorney will take the required steps to prove that you meet at least one of the three requirements to qualify for abatement: reasonable cause, administrative waivers, or a mistake by the IRS.
Receive Tax Help From US Tax Shield
Understanding tax interest and penalties is important if you want to avoid simple mistakes. The tax experts at US Tax Shield can help guide you through tax seasons and reduce your tax penalties through tax resolutions and penalty abatement programs. Contact US Tax Shield today at (877) 829-3535 for your free, no-obligation consultation.
