Penalties and Interest in TAX (USA)

Penalties and Interest

Taxpayers who owe back taxes to the IRS may be surprised when they realize the amount the IRS charges in penalties and interest monthly to any remaining tax amount. These charges can substantially increase a tax debt amount, making it even more difficult to resolve.

 Types of Penalties and Interest

Taxpayers can expect standard penalties and interest charged to their tax debt, including:

• Failure to File Penalty: The late-filing penalty is applied to taxpayers who fail to file their income taxes by the deadline. The IRS applies 5 percent of the tax debt amount each month the return remains unpaid, not exceeding 25 percent. If the return remains unfiled for more than 60 days, a minimum penalty of $135 or 100 percent of the unpaid tax is applied to the debt. The penalty amount is calculated through the amount of taxes due on the tax return.
• Failure to Pay Penalty: This penalty applies a 0.5 percent penalty to the tax amount as long as it remains unpaid, up to 25 percent of the total taxes owed. However, this penalty may be removed if there is just cause to the late payment.
• Interest: The interest amount the IRS charges on a tax debt is set quarterly (every three months) by the IRS, with the current interest rate at 3 percent per year. The interest is calculated every day the tax amount remains unpaid.

For taxpayers who have a tax debt ballooned by penalties and interest, please call our tax specialists at (855) 327-9551 for a free consultation to explore the options for a possible Penalty Abatement or other IRS programs to resolve the tax debt.

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Unfiled Taxes in USA: Solution

Every year in April, Americans file their income tax returns with the federal government, but many times there can be circumstances that prevent some taxpayers from filing their returns on time, or at all. When taxpayers have unfiled tax returns, they not only lose out on the potential refund money they may be eligible for, but they allow the IRS to file their return for them using a Substitute for Return (SFR).

SFR Facts

A Substitute for Return occurs when a taxpayer fails to file their tax return, and the IRS makes an educated guess for the taxes they may owe. The IRS will not know the extent of tax credits or deductions a taxpayer qualifies for, which can leave a taxpayer owing more taxes than they should.
Once the IRS files a SFR, the tax liability becomes an assessment, which may become final if a taxpayer fails to respond to the assessed tax debt, at which point the IRS is legally allowed to pursue collection actions.
When a taxpayer is notified about a tax debt due to SFR filings, it is encouraged that they seek professional tax assistance to help them. A tax professional will be able to file the missing tax years, which may decrease the tax debt amount substantially because of the omitted tax credits and deductions. Once all years have been filed, the IRS will allow the taxpayer to enter into a payment agreement for any remaining taxes owed.
If you have unfiled taxes, please call our tax specialists at (855) 327-9551 for a free consultation today.

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