How to Avoid IRS Penalties for Late Payments: A Simple Guide
Dealing with IRS penalties can be stressful, but understanding how they work and taking proactive steps can help you avoid them. Here’s a straightforward guide to help you navigate late payment penalties and keep your finances on track.
What Are IRS Late Payment Penalties?
The IRS imposes penalties when taxes are not paid on time. The two main types are:
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Failure-to-File Penalty: If you don’t file your tax return by the due date, the penalty is typically 5% of the unpaid taxes for each month or part of a month the return is late, up to a maximum of 25%.
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Failure-to-Pay Penalty: If you file your return but don’t pay the taxes owed, the penalty is usually 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid, up to a maximum of 25%.
How to Avoid These Penalties
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File Your Return on Time
Even if you can’t pay the full amount, filing your return by the due date can help you avoid the higher failure-to-file penalty. -
Pay What You Can
Paying as much as possible reduces the amount subject to penalties and interest. -
Set Up a Payment Plan
If you can’t pay in full, consider applying for an IRS payment plan. This can reduce the failure-to-pay penalty to 0.25% per month. -
Request Penalty Relief
If you have a valid reason for late payment, such as serious illness or natural disaster, you may qualify for penalty relief.
Example Scenarios:
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Scenario 1: You owe $1,000 in taxes and file your return 3 months late but pay $500. Your failure-to-file penalty would be 5% per month on $1,000, totaling $150. Your failure-to-pay penalty would be 0.5% per month on $500, totaling $7.50.
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Scenario 2: You owe $1,000 and file your return on time but pay nothing. Your failure-to-file penalty would be 5% per month on $1,000, totaling $150. Your failure-to-pay penalty would be 0.5% per month on $1,000, totaling $15.
In both scenarios, paying as much as possible reduces the penalties.
Need Help?
If you’re in Los Angeles and need assistance with your taxes, Velin & Associates, Inc. is here to help.
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Phone: 323-902-1000
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Email: dmitriy@losangelescpa.org
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Website: www.losangelescpa.org
Our team of experienced accountants and tax advisors can guide you through the process and help minimize any penalties.
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.