There is a punishment for ‘just’ about every misdeed. We are not penalized for what wrong we do, but for how we get justified. In the same wavelength, there are massive tax protesters - some do it successfully and those who don’t hit then as the book says - get caught by IRS and charged with hefty penalties.
Unless and until one owes to IRS, interest and/or penalty will not be imposed. On the contrary, if IRS owes something to someone, it may pay interest on refund for holding up the same. A person who is entitled for refund infers that he doesn’t have any tax dues on his part and so will not be snagged by interest and penalty. Based on this fact, penalties and interest can be tagged broadly in types mentioned beneath.
• Non Filling Penalty:
If one fails to file return by deadline, IRS will put him to penalty at rates ranging from 5% to maximum 25% of the unpaid amount. It calculates the penalty amount on monthly basis. One month delay to file return accounts 5% and that of 3 months delay accounts 15% of tax owed.
• Non Payment Penalty:
As like non-filling confrontation, failure to pay federal tax is subject to IRS penalty going in pace with unpaid tax. Penalty is calculated at the rate of 0.5% per month. The worst fact about this kind is ‘no maximum limit’ and calculated from the deadline to the time when tax is actually paid in full.
• Interest on Outstanding Tax:
As the title cites; IRS in addition to penalties charge taxpayers with interest. For this reason, interest rates keep varying every next quarter, which is calculated on unpaid amount on daily basis.
• Tax Fraud Penalty:
Besides those mentioned above, tax evaders (who file wrong, misleading and/or incomplete information with tax return) are charged with Fraud Penalty, which in turn results in forfeiture of assets and/or imprisonment on the word of court.
What could be an apt line of attack to stay away from these hassles? Paying Estimated Tax is one of the excellent ways to steer clear of interest and penalties. Indeed it is widely favored manner by self-employed taxpayers, investors, landholders, and by those who owe more than their withholdings.
