Understanding Tax Penalties and Interest
Tax penalties and interests are not applicable in tax years when a taxpayer is entitled to get a refund. In fact, there is about 1/3 of the tax payers who file for their tax returns for the past several years who have now discovered that they are entitled for a refund.
The penalties and interests only apply to the tax years when you owe money. In most cases, the interests are charged for late tax payments change quarterly and during the past years, the interest rate ranges between 4% and 9%.
The penalty that you make for filing late for your tax return is 5% monthly and you get up to 25% of that amount reflected on your tax return. Moreover, the penalty for late payment is between ½ and 1% monthly.
The IRS acknowledges that there are a lot of people who fail to pay their taxes because of personal problems which include death in the family, illness, loss of financial records due to calamities. When this situation arises, it is always important that you inform the IRS so that you your penalties will be waivered.
Here are some of the things that you need to consider when it comes to tax penalties and interests:
– Taxes that are paid in time reduces penalties and interests incurred to the tax payers.
– The interest based on the unpaid balance and liabilities charged to the tax account.
– If you make payments through installment agreements, the penalties as well as interests are still present based on the unpaid amount of the debt.
– The interest rate that you get from a bank loan is lower than the penalties and interest that you have to pay when you do not file for your tax on time.