June 13, 2024
IRS Tax Penalties Guide: How to Minimize or Avoid Them

Those who have a tax debt with the IRS are aware that the agency may assess additional fees and interest on top of whatever they owe in taxes. The Internal Revenue Service (IRS) is a creditor that, like many others, assesses penalties and interest on overdue balances. There are no grace periods for paying taxes; the government expects payment on or before the due date.

How much are irs tax penalties?

A 5% monthly penalty of the tax due applies for filing late. For returns that are more than 60 days late, the minimum penalty is $210 or 100% of the tax payable, whichever is greater. The maximum penalty is 25% of the tax owed.

Whether or not you have the funds to pay your entire tax debt, you should still file on time to avoid a penalty for late filing. An installment arrangement could allow you to pay down your loan in monthly chunks. To avoid this fine, you can alternatively ask for a six-month extension on your filing deadline.

Percentages of Interest Charged for Late or Incomplete Tax Payments

Percentages of Interest Charged for Late or Incomplete Tax Payments

Each quarter, the Internal Revenue Service adjusts the interest rates for underpayments. Taxpayer interest rates are determined by adding three percentage points to the federal short-term rate.

The Internal Revenue Service may waive a penalty in two typical situations.

1. Reasonable cause

The Internal Revenue Service (IRS) may agree to waive your penalties if you were prevented from filing on time or from paying the tax you owe by unusual circumstances. A house fire, natural calamity, serious sickness, or the loss of a close family member could all qualify as reasonable cause. The claim that you trusted a tax expert who made a mistake is a classic Reasonable Cause defense. The IRS rejects many arguments that stop short at this point.

2. First-time penalty abatement

If you are usually prompt in filing your taxes but forgot this year, the Internal Revenue Service (IRS) may grant you a one-time extension. All tax returns must have been filed, the tax debt must have been paid in full or an installment plan must have been established, and no penalties may have been assessed in the preceding three years.