November 19, 2019 - IRS Tax Penalties and Interest
Hi all! Another informational post about IRS penalties. Many tax payers, after I prepare and file their return, come back to me with questions like – “why did I get penalties”? “why do I owe interest”? I wrote this post to clarify the world of IRS penalties and interest.
1. Your tax return is due April 15th and you can get a ONE-TIME six month extension until October 15th. This is an extension to FILE, not an extension to PAY. So if you file on time but pay after April 15th – you’re subject to a failure to pay penalty. If you fail to obtain an extension and file after April 15th, you get a failure to file penalty.
2. How much is the failure to file penalty? If you file within 2 months of the deadline, the penalty is the LESSER of the tax due or $215. (in most cases - $215). If the return is more than 5 months late, then the penalty is 5% of the unpaid tax PER MONTH for each month up to FIVE months.
3. If you pay on time, but you owe a significant amount of money – you can be subject to failure to pay estimate taxes. How much is too much? You must pay at least 100% of the taxes due in 2018 or 100% of the tax due in 2019 (as an example). Since the tax due in 2019 is unknown until you file, I advise clients to pay 100% of the tax due in 2018.
4. If you owe more than $1000, even if you file and pay on time, the IRS will charge you interest. This interest rates change quarterly based on the Fed funds rate and differ for over/under payments (yes the IRS can owe YOU money for large refunds). You can find these rates here: https://www.irs.gov/pub/irs-pdf/n746.pdf
5. If you have good tax compliance history, the IRS can waive a penalty but it never waives INTEREST. You would need to call the IRS to request the one-time waiver. All future waivers require justification and a written letter.
6. Remember that installment agreements still accumulate interest.
7. Remember that NYS and NYC rules differ from the IRS.
If you have further questions – let me know. There is also a nifty (but hard to use) online calculator for these things:
https://www.irscalculators.com/interest-calculator
For more detailed info directly from the IRS – go here: https://www.irs.gov/…/…/understanding-penalties-and-interest