Sunday, April 20, 2008

When Do Penalties and Interest Apply

Penalties and Interest do not apply in years in which a taxpayer is entitled to a refund. About a third of those who file returns for past years discover they have a refund coming. Penalties and interest apply to years in which money is owed. The interest charged on late paymnts changes quarterly. During the last several years th interest rate has changed from a high of 9% to a low of 4%.

Filing Late Penalty:

The penalty for filing late is generally 5% per month, or part of a month, up to 25% of the amount of the tax shown due on th return.

Paying Late Penalty:

The penalty for paying late is 1/2 of one percent per month, up to 25% of the unpaid amount due.

Waiver of Penalties:

The IRS recognizes many people drop out of the system because of personal problems, including serious illness, a death in the family, or loss of financial records in a natural disaster. Depending on the situation, informing the IRS why returns have not ben filed could result in a waiver of penalties.

*Taxes paid in a timely manner reduces the amount of penalties and interest a taxpayer may owe.

*Interest is calculated on the unpaid balance, penalties, and interest that have been charged to the tax account.

While making payments on a tax debt through an installment agreement, pnalties and interest continue on the unpaid portion of hat debt.

Obtaining a loan from the bank woud be a better option in terms of a loan versus paying the acrued penalties and interest payment.

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