Did you know that the IRS has the right to add penalties onto the taxes owed if you do not pay on time? This is something that many people are unaware of. All in all, filing your taxes late can cost you a lot of money if you do not have a refund coming to you. Fortunately, if you are owed a refund there is no penalty associated with filing late since you do not owe any additional money. It is important to be aware of IRS late payment penalties – this is usually enough to scare most people into filing on time.
Did you know that the IRS has the right to add penalties onto the taxes owed if you do not pay on time? This is something that many people are unaware of. All in all, filing your taxes late can cost you a lot of money if you do not have a refund coming to you. Fortunately, if you are owed a refund there is no penalty associated with filing late since you do not owe any additional money. It is important to be aware of IRS late payment penalties – this is usually enough to scare most people into filing on time.
There are different levels of penalties that you need to be aware of. They include:
1. Interest. Did you know that interest is applied to every late tax payment? These rates are set quarterly and change every three months. Interest is added to the balance due every day you are not paid in full. As you can imagine, this can really add up if you owe money for a long period of time.
2. Failure to pay penalty. This penalty is applied when you file your taxes but do not pay them in full. This is all too common among taxpayers in today’s day and age. The failure to pay penalty is calculated as follows: 0.5 percent for each month you are not paid in full, based on the amount owed. The maximum penalty for failing to pay is 25 percent.
3. Failure to file penalty. This is a penalty that you pay if you do not file and pay your taxes. It is calculated at 5 percent of your balance due on a monthly basis. You will continue to pay this penalty until you file your return. This penalty begins to apply to your account from the deadline date for filing. The maximum failure to file penalty is also 25 percent.
4. Combined penalties. If you have both unpaid taxes and have yet to file, you can be hit with a combined penalty. This penalty is 5 percent per month. When both penalties are charged the IRS reduces the failure to file penalty by 0.5 percent to make an even 5 percent combined. The maximum combined penalty is 47.5 percent of the original amount owed. As you can see, this is a huge penalty that can greatly increase the amount that you owe the IRS.
There are many penalties for paying taxes late. Along with this, you may run into other penalties and interest along the way. As a taxpayer, you will be able to avoid penalties year after year if you file on time and pay any taxes that are due. It makes more sense to file and pay on time than to get penalized by the IRS and end up owing as much as 47.5 percent more.
Now that you know more about IRS late payment penalties you should realize the importance of paying on time every year. There is no good reason to want to pay the IRS more than you have to.
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