Every year individuals and businesses must pay taxes (unless they make so little that none are due). Also, with certain limited exceptions, individuals and businesses must file a tax return. Failure to do either of these when required will result in penalties.
If you file a tax return for a given year but don’t pay all the taxes you owe, the IRS will assess a penalty called the Failure to Pay Penalty. Pursuant to this penalty, the IRS will charge you ½ of 1% of the unpaid taxes per month. This penalty cannot exceed 25% of the unpaid taxes.
If you were required to file a return for a given year and failed to do so, the IRS will assess a penalty called the Failure to File Penalty. Pursuant to this penalty, the IRS will charge you 5% per month of the amount of taxes you would have owed if you would have filed the tax return on time. This penalty cannot exceed 25% of the unpaid taxes.
The Failure to Pay Penalty and Failure to File Penalty are the two most common types of IRS tax penalties. Fortunately, there are methods to reduce or completely eliminate the penalties.
If you don’t pay your taxes on time, not only will you face the penalties above, but you will be charged interest on the amount that was not paid. The IRS charges interest not just for the amounts you failed to pay, but also interest on the penalties themselves. For instance, if you fail to file a return and incur a $1000 Failure to File Penalty, you will owe interest at the applicable rate on the $1000. There is no interest charged on the Failure to Pay Penalty. Getting interest reduced is more complicated than getting penalties reduced, but in some cases, interest can be reduced, depending on the circumstances. Unfortunately, there is no limit to the amount of interest the IRS can charge you.
There are two primary methods a Dallas tax attorney at Margolies Law Office can use to help reduce your interest and penalties. First, if certain conditions are met, all penalties for a specific year can be completely eliminated. And if these penalties had interest added to them, the interest will go way with the penalty. For example, if you incurred a Failure to File Penalty in the amount of $1000, and interest on the penalty is $500, abating the $1000 penalty will also completely abate the interest charge.
Penalties for all other years, and regardless of specific conditions or the amount of years owed, can be reduced if you can show reasonable cause for having incurred the penalty. For example, if you failed to file a return because of an ongoing illness, the IRS may agree to reduce or eliminate the penalty.
Making the case for a penalty and interest reduction requires knowledge of how the IRS works and the specific conditions that must be met. Call a Dallas tax attorney at Margolies Law Office to find out if you qualify for Penalty and Interest Abatement.