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IRS Penalties on 1040 Tax Returns

Posted by Rachel Santana Posted on July 06 2016

We are often asked about penalties that the IRS assesses for filing late, paying late, etc.


The penalty for filing a return late is 5% of the tax owed per month. This is called the failure to file penalty. Thankfully, it is capped after 5 months, but that totals up to 25% of the total tax due which is quite hefty. There is also a minimum penalty of 100% of the tax due or $135.


If there was no tax due, then there is no penalty assessed. The IRS is happy to hold your refund for additional time of course.


An extension is a way to avoid a failure to file penalty, and that gets you an additional 6 months to file making your return due not April 15th, but October 15th.


It is possible to have late filing penalties forgiven. In fact, I called the IRS just yesterday and they forgave nearly $1,400 in penalties for a taxpayer, but habitual late filers will receive no mercy.


There is also a failure to pay penalty, so do not file an extension if you will owe money unless you send that payment in with the extension. The failure to pay penalty is ½ of 1% of your unpaid taxes, and even if you set up an installment agreement, that continues to accrue. It maxes out at 25% of your total tax due.


So, it is expensive to owe the IRS. My best advice? File on time and never fall behind. If you do, then call us to help you set up an installment plan and start whittling that debt down.