How to Avoid Dreaded IRS Penalties and Interest
Owing money on your taxes is bad enough without being subjected to numerous fines and penalties. Often these can make a previously challenging tax bill an unmanageable tax bill. When it comes to levying penalties and interest the IRS doesn’t mess about.
The number of penalties and fines that can be levied against you are numerous but only a few should concern you. We can call these the power five for the sake of argument:
- Late payment penalty
- Underpaying penalty
- Failure to file penalty
- Substantial understatement penalty
- Negligence or intentional disregard penalty
These penalties exist not has means of extracting every last dime from the tax payer, but means of ensuring compliance. Let’s face it, if we all had the opportunity to forgo paying our taxes, most of us would do so. Paying taxes isn’t fun, pure and simple.
In many instances the penalties will be raised not by a human being making an assessment, but by a machine—computer to be exact. Computers as you and I know make mistakes sometimes when they are fed bad information and so if you’ve been assessed for a penalty or interest payments, the first thing you should do is make sure the assessment is correct.
The IRS has a somewhat tapered attitude to the different type of infringements. Failing to pay on time and underpaying are not as serious as those penalties that are attached to fraud. Uncle Sam doesn’t take too kindly to being cheated and the likes of Wesley Snipes can attest to that.
So what should you do if you find yourself on the business end of an IRS audit? This answer may sound simplistic, but one thing you shouldn’t do is panic. It doesn’t help and will prevent you from making the type of level-headed decisions suited to getting you out of a bind.
The first thing you should is find out what penalties are likely to be thrown at you. Interest charges will be fairly accurate if you are delinquent and only fraud penalties should really cause you to lose sleep.
One Possible Solution
If you are being assessed for penalties and interest it may help to get in touch with a qualified tax professional. Doing so will allow you to make a case for what is called an IRS penalty abatement. Basically what this does is allow you to do is wipe a good chunk from your tax bill (around 25%). A tax professional will be able to present a credible case to the IRS as to why you might have fallen foul of the rules.
As long as you keep a cool head and get professional help, you’ll be able to deal smoothly with Uncle Sam.