While the possibility of a big tax refund compels many of us to ensure our taxes are filed and paid on time, avoiding IRS penalties and interest should serve as additional motivation.
The IRS penalizes taxpayers for several reasons, and some of these tax penalties can be costly.
If you are facing IRS penalties and/or IRS interest charges, here are some tips on how to remove or reduce them.
What Is an IRS Failure to File Penalty?
You will be issued an IRS Failure to File Penalty when the IRS does not receive your tax return by the original tax deadline or the extension deadline.
How Much Is an IRS Failure to File Penalty?
The IRS Failure to File Penalty amount is 5% of your unpaid tax balance per month up to a maximum of 25% of your balance.
How Do You Remove or Reduce an IRS Failure to File Penalty?
You can remove or reduce an IRS Failure to File Penalty by demonstrating to the IRS that you were acting in good faith and that your failure to file was not intentional. Read more: “Filing Taxes Late: What If You Missed Tax Deadline or Have Past Due Returns?”
What Is an IRS Failure to Pay Penalty?
You will be issued an IRS Failure to Pay Penalty when you have unpaid taxes after the tax deadline or approved extension deadline.
How Much Is an IRS Failure to Pay Penalty?
The IRS Failure to Pay Penalty amount is 0.5% of the balance per month up to a maximum of 25%. However, the IRS also charges interest on this penalty, and there is no cap on that.
How Do You Remove or Reduce an IRS Failure to Pay Penalty?
You can remove or reduce an IRS Failure to Pay Penalty by showing that your unpaid tax balance was due to Reasonable Cause, such as a natural disaster or serious illness.
What Is an IRS Accuracy-Related Penalty?
You will be issued an IRS Accuracy-Related Penalty when you understate your actual tax liability on your return and underpay as a result of that inaccuracy.
How Much Is an IRS Accuracy-Related Penalty?
The IRS Accuracy-Related Penalty amount is 20% of the unpaid tax liability.
How Do You Remove or Reduce an IRS Accuracy-Related Penalty?
You can remove or reduce an IRS Accuracy-Related Penalty by showing that the understatement was accidental and not willful or intentional.
What Is an IRS Underpayment of Estimated Tax Penalty?
You will be issued an IRS Underpayment of Estimated Tax Penalty when you underpay or fail to pay your estimated taxes, which are required throughout the year if you do not have taxes withheld by an employer.
How Much Is an IRS Underpayment of Estimated Tax Penalty?
The IRS Underpayment of Estimated Tax Penalty amount is based on the underpayment amount, the length of the period for which it was underpaid, and the interest rate for underpayments for that period (which the IRS makes public).
How Do You Remove or Reduce an IRS Underpayment of Estimated Tax Penalty?
You can remove or reduce an IRS Underpayment of Estimated Tax Penalty by showing the IRS that you had most of your income withheld early in the year and therefore had less to withhold later in the year, or that your income varied too much to make consistent estimated payments.
Will the IRS Reduce or Remove Interest Charges?
Unfortunately, the IRS cannot legally remove or reduce interest charges unless your underlying tax penalty is removed or reduced. In rare cases, the IRS might remove interest that continued to accrue because of a delay or backlog on their end.
What Are the Types of IRS Penalty Relief to Reduce or Remove Current or Future Tax Penalties?
The IRS offers several ways to apply for IRS penalty relief. These include:
Reasonable Cause
Reasonable Cause means you “used all ordinary business care” to fulfill your tax obligations but were not able to do so and received an IRS penalty. Some typical Reasonable Cause situations include a natural disaster or serious illness. Financial hardship alone might not qualify when you fail to file or pay your taxes by the deadline.
First-Time Penalty Abatement
First-Time Penalty Abatement (FTA) allows you to apply for an IRS administrative waiver of your penalty if you have a strong history of paying taxes but made a one-time error that led to the IRS penalty.
Statutory Exception
You might qualify for a statutory exception if your IRS penalty resulted from erroneous advice in writing from the IRS itself.
Tax Debt Relief
Wiztax can help you apply for a number of IRS tax relief programs, including: Offer in Compromise, where the IRS agrees to accept a lower amount than your outstanding tax debt as payment in full.
In addition, we can see if you qualify for one of the Penalty Abatement programs. Call us anytime at 866-568-4593 or start for free by answering 6 simple questions.
6 Simple Questions. Free Evaluation.
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