Do you owe back taxes? If so did you know that the IRS will calculate interest and penalties against the full amount that is owed? If you are entitled to a refund, then the IRS might even pay you on the interest for the delayed refund. If you are entitle to a refund there are not any penalties in place if you file late. If there are penalties that you incur they will be calculated on the total amount due and since you do not owe any money then there is no amount due, therefore there will be any penalties ensued on your IRS tax return. However should you have a balance that is due on a late IRS tax return then you will be charged penalties and interest on the amount that you owe.
Here are three different penalties that you may be charged with:
Failure to Pay Penalty
Interest
Failure to File Penalty
Each of these penalties are calculated differently. We need to look at each one carefully.
Failure to Pay Penalty
The failure-to-pay penalty that is given out by the IRS will be calculated on any tax that you owe the IRS. The penalty is about 0.5% for every month that the IRS Debt is not paid in full. Keep in mind that with this IRS penalty that there is not a max limit in place for the failure to pay penalty. This particular penalty is calculated from the original April 15th filing deadline and is in place until the last month that IRS Debt balance is paid in full.
Failure to File Penalty
The failure-to-file penalty will be calculated from the time that the deadline on your IRS tax return until the date that you actually are able to file. If this penalty is ensued on your IRS debt then you will be charged 5% for every month that your IRS tax return is late as well as a maximum total of 25% The amount you will be charged will be the percent of the IRS Tax debt due as shown on your IRS tax return form. If you are beyond 5 months late then just simply multiply your balance by the 25% so that you will know what your failure to file penalty will be. Also if you able to file a extension that you may be able to reduce or even completely eliminate this penalty.
Interest
Interest will be calculated on the total amount of IRS debt of tax that you owe. These rates change every quarter (or three months). The current IRS interest rate is about 4% on a per year basis. This interest will be calculated for every day that your balance is not paid in full. Keep these factors in mind when you are reviewing your claim if you are late to the IRS.
IRS.gov Tax Topics
Topic 653 – IRS Notices and Bills, Penalties and Interest Charges
http://www.irs.gov/taxtopics/tc653.html
