Tag Archives: #tax penalties

The Cost of Your Tax Return Filing

With the current tax deadline of July 15th fast approaching, as of June 12th the IRS is down 12% processed compared to the 2018 tax return filing season or over 17 million.  However, the rules for penalties and interest still apply for filing and payments made making this deadline next month, and below are some of the more prominent items to consider if you are not able to make your deadline.

There are what is called system generated penalties that do not require IRS manager approval listed below:

  • Failure to file is one of the most common
    • 5% of the net tax due for each month the return is late up to 25% or 5 months; minimum failure to file penalty is $425 or 100% of the net tax due if not filed within 60 days
  • Failure to pay again one of the most common
    • 5% per month with the maximum penalty 25% of the net tax due for up to 50 months
  • Failure to deposit penalty rates are
    • 2% for 1-5 days late; 5% for 6-15 days late; 10% for deposits made more than 15 days late
  • Bad check for checks less than $25
    • a penalty the amount of the check; if your $20 check bounced, you’ll now owe the IRS $40; checks between $25 and $1,250, a flat penalty of $25, checks of $1,250 or more, a penalty of 2% of the amount of the check
  • Estimated tax the standard penalty is 3.398% of your underpayment, but it gets reduced slightly if you pay up before July 15
    • if you owe a total of $14,000 in federal income taxes for 2019 and you do not pay at least $12,600 of that during 2019, you’ll be assessed the penalty

Manually generated penalties requiring an IRS manager approval

  • Accuracy again one of the most common
    • 20% penalty on the underpayment of tax
  • Fraud and false statements
    • upon conviction, the taxpayer is guilty of a felony and is subject to (1) imprisonment for no more than 3 years, (2) a fine of not more than $250,000 for individuals or $500,000 for corporations, or (3) both penalties, plus the cost of prosecution (26 USC 7206(1))
  • Fraudulent failure to file
    • 15% of the net tax due, increases up to 75% of the net tax due

There are opportunities to request abatement on interest and penalties through proper channels and persistence, which include:

  • Reasonable cause
  • Undue hardship defense
  • First time abatement
  • Correction of an IRS error
  • Penalty abatement

Above all else, if you owe taxes and cannot pay, file your return on time and pay what you can online.  It will save you a substantial amount of penalties as evidenced above.  Due to the Covid-19 pandemic, phone operator service is still very intermittent as the IRS has been shut down for several weeks and millions of pieces of unprocessed mail stored in containers are slowly being sifted through, as employees are returning to offices in shifts while practicing social distancing and promoting a safe work environment to return.

Dwayne J. Briscoe

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Paying the “Stupid Tax”

Yes, we’re in the midst of tax filing season and everyone is either scrambling to get all of their paperwork together to get it turned in and their returns filed on time, while others are slowly going through their faded receipts, typing everything in their spreadsheets, and gathering their bank and credit card statements for someone else to go through to put together since that’s what they do every year.  But the upside is yes there’s always the opportunity for getting that 6-month extension, however,

#1 it’s not automatic, you must physically file it and verify with your tax preparer it’s been done

#2 if you owe taxes, you will still accumulate interest and penalties to pay on top of those taxes and the extension doesn’t exempt you from getting them

Below is a few examples of the interest rates and penalties for those who end up owing taxes and either hadn’t paid them on time by the end of the year or from filing an extension with.

  • Filing a late Form 1120S tax return, each shareholder listed could be fined a late filing penalty of $195.00 per month for each month or part of the month the return is late, up to 12 months.
  • Filing a late Form 1065 tax return, each shareholder listed could be fined a late filing penalty of $195 per month for each month or part of the month the return is late, up to 12 months.
  • Filing a late Form 1120 tax return with an outstanding tax debt, the corporation will be charged a monthly late-filing penalty of 5% of the outstanding tax up to 5 months or when the return is more than 60 days late, the minimum penalty is the smaller of the tax due or $135
  • Interest is accrued indefinitely until the tax debt has been paid. The interest rate is determined quarterly and is the federal short-term rate plus 3%, and the interest compounds daily.
  • The failure-to-pay penalty is one-half of one percent for each month, or part of a month, up to a maximum of 25%, of the amount of tax that remains unpaid from the due date of the return until the tax is paid in full.

Again, these are just a few highlights of filing late for businesses and potentially taxes, not to mention the penalties and interest for personal tax returns which follow a different set of guidelines.  Judge Lynn Toler who hosts Divorce Court often will refer to the “stupid tax” people pay with regards to what they waste their money on by breaking things, throwing away their loved ones’ treasures, etc.  This is what business owners do when they don’t bother to review and manage their financials to ensure their tax returns are filed on time.  They could end up paying the stupid tax.

Dwayne J. Briscoe

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