If you did not follow the tax law, you might be a subject to a tax penalty. These penalties can vary but if ignored they will add up to create more IRS problems.
If you do not file tax returns on time, you will face a five percent IRS penalty. This penalty will add up for each month that the tax returns are late for. However, this penalty will not exceed twenty five percent. It is highly recommended to file tax returns even when you cannot pay taxes to avoid increasing interest rates and further IRS problems.
If you are late on paying taxes, the penalty will be a half percent of the amount owed per month. If you cannot pay at the time, you have the option to apply for an extension which in usually granted for six months. If by the end of the six months you pay off at least ninety percent of the amount due, you will not be penalized for the remaining amount. In addition, if you make an arrangement with the IRS and pay your taxes in installments, the penalty will only be a quarter of a percent of the unpaid balance.
If you do not file tax returns on time and are also late on paying taxes, here is how you can calculate the penalty rate. Subtract the fee for paying late from the fee for filing tax returns late. There is also a minimum fee for those who are late for more than two months. The minimum penalty is the smallest of either one hundred and thirty five dollars or remaining tax owed.
There is also a penalty fee for underpaying taxes. This fee can vary depending on the reason of underpayment and if it is due to failure for disclosing foreign financial assets or noneconomic material transactions, you may have bigger IRS problems then just financial penalty. In these cases, however, the financial penalty is forty percent. If the taxes were underpaid due to a mistake such as poor record keeping, the penalty is twenty percent.
In order to calculate the amount of penalty due, you will need to fill out Form 2210. There is additional penalty if the tax penalty has not been properly paid. In most cases it recommended to talk to a tax resolution attorney in order to find the best way to negotiate with the IRS and avoid additional IRS problems.