IRS Tax Penalties & Interest: Common Tax Penalties Incurred
IRS Penalties and Interest Are Typically Caused By Estimated Tax Underpayments, Failing to Pay or File Taxes On Time
There are over one-hundred and forty tax penalties that the IRS can charge the taxpayer. However, only a few are commonly used. The most common penalties are the Failure to File Penalty, Late Payment Penalty, the Penalty for Underpaying Estimated Taxes, the Substantial Understatement Penalty, and the Penalty for Negligence or Intentional Disregard.
The IRS uses penalties to not only encourage compliance, but to create a fair tax code in the sense that taxpayers will be punished if they do not comply. In most cases, an IRS computer assesses penalties. However, this does not mean that the penalties assessed are always justified. Even if the IRS is right, sometimes penalties and interest can be abated. Typically an IRS assessment letter, or an Examination Report (from an audit), will tell you how long and how much you owe including any amount for tax penalties and interest.
The IRS has penalties for many different things and the amounts of those penalties vary for each particular item. There are five basic categories for penalties. These five categories are:
- Accuracy Related Penalties
- Fraud Penalties
- Underpayment Penalties (Failure to Pay Taxes, Failing or Underpaying Estimated Taxes)
- Late Return or Failure To File Penalties
- Combined Penalties
Typically the most severe penalties are the fraud penalties. There are many different types of fraud penalties, but to give you an idea of how harsh this is, if you fraudulently underreported your income by $100,000, the IRS will fine you 75% of that underreported amount, so you total penalty will be $75,000, which will also include additional interest.
Reducing or Eliminating Penalties and Interest
One way to reduce penalties and interest is through IRS penalty abatement. Typically, with penalty abatement, you will be able to eliminate a good portion, if not all of the penalties, but not the interest, (known as Interest Abatement) if you can show reasonable cause. Eliminating these penalties may lift a huge financial burden off of your shoulders. Normally, penalties make up 25% of the total tax debt amount, but can be up to 90% of the total amount owed because of the large failure to file penalty and overall underpayment interest rates. If you would like a professional tax team on your side to help you abate penalties incurred, or you would like a complimentary consultation to see if you qualify for penalty abatement, request a quote today.
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IRS Penalties Reduction Help & Info
Eliminate penalties and interest if you have legitimate reason for falling behind and not paying back taxes owed on time.
Can You Remove IRS Penalties?
Yes you can remove IRS penalties. Find out what is required to eliminate penalties owed to the IRS.
Tax Abatement Help
Do you need help abating tax penalties? Our partner tax team can remove IRS tax penalties owed through penalty abatement. See if you qualify to have penalties removed.
Failure to File Tax Penalty
Understand how to calculate the penalty for not filing your taxes. Understand what the maximum is and what happens if fraud or negligence is involved.
Failure to Pay Tax Penalty
The penalty for not paying taxes or underpaying taxes ranges from 1/4% to 1% . Understand what rate you will be charged and if you can remove the penalties.
Penalty for Filing Taxes Late
Penalties for filing a tax return late or not filing a tax return vary depending upon your situation. Q&A about various situations and the tax penalties (if any) that are associated with them.
IRS Underpayment Penalties and Interest Rates
Understand what IRS interest rates are for failing to pay or pay in full and what you can do to lessen penalties.
IRS Late Payment Penalty
The IRS charges penalties if you don’t pay on time. Penalties are determined by filing status and amount not paid. Understand the different late penalties
IRS Tax Fraud Penalties
Tax fraud is a serious offense in the eyes of the IRS. The IRS has many different classifications of tax fraud and different penalties for each type.
Tax Evasion Penalties
Using illegal means to avoid taxes can lead to some of the harshest IRS penalties that exist. Fines can be up to 500K with imprisonment up to 5 years.
IRS Penalty Abatement Letter
In order to abate tax penalties you must include a letter to the IRS to support your reason. Here is an example of what can be included in your letter.