6 Tips to Avoid IRS Penalties, Interest and Filing Fees This Tax Season
Here are a few tips to avoid IRS penalties, interest and general filing fees.
File On TimeThe IRS can penalize you up to 5% per month up to a total 25% of taxes owed
If You Can't File On TimeRequest a 60 day extension to avoid the 5% to 25% penalty on taxes owed
- Use Form 4858 or use the IRS's FreeFile to E-File extension for free (no income min)
- Include 90% or whatever you can to reduce the underpayment Penalty (.5%)
File for Free Or File for LessTake advantage for free government filing programs or various tax software programs to reduce professional filing fees
- If you make less than $56k or less in 2008 Use IRS's FreeFile (like TurboTax but free)
- If you make more than $56k use a tax software program like TurboTax or TaxCut as typically it is much cheaper than using a CPA or tax accountant
Can't Pay In FullRequest an IRS Installment Agreement (IA) or Apply for a Bank Loan
- Use Form 9465 or Use the Online Payment Agreement Application to request an IA if you cannot obtain or do better than 7% (current IRS interest rate plus 3% penalty) with a bank loan
- Don't repay the IRS without an Installment Agreement or Loan as interest will be 10% or higher
Abate Penalties With Reasonable CauseIn some cases, if you have good reason you can file to have underpayment and filing penalties abated or removed.
- You experienced a death by a close family member or divorce
- Your records were destroyed which was out of your control
- A natural disaster struck
- You were incarcerated or suffering a major illness
- You experienced a lengthy time of unemployment
Contact the Taxpayer Advocate ServiceThis is an “independent” organization, part of the IRS, which can help you with reducing your tax penalties. Call them at 1-877-777-4778 or 1-800-829-4059.
Penalties are used by the IRS in order to scare taxpayers to remain in compliance with US tax laws. With the increase in technology used by the IRS they have been assessing individuals penalties at an increased rate. The above tips can help you avoid interest, filing fees, and the most common penalties given by the IRS. Just remember that if you know you are going to have a problem filing or paying your taxes there are solutions offered by the IRS to avoid or decrease the penalties associated with common IRS problems.
By InvestorGuide Staff