Ways the IRS Can Penalize You: Interest, Penalties, Levies and Liens
There is nothing fun about completing your annual tax return — and news that you have to pay the IRS is something we all dread. There are times when it seems easier to put off paying your debt to the IRS. After all, it is possible that they may not notice, so it could be years before it catches up with you. While this might technically be true, the fact is that once the IRS does take notice that you have not paid them, they will hit you with significant interest and penalties, which can add up quickly and cause you significant problems.
Interest and Penalties
Interest and penalties are the two main strategies for penalizing those who have neglected to pay the IRS what they owe. The IRS can penalize you for not filing your taxes as well as not paying them. If you do not pay your taxes on time (usually by the April 15th deadline), you will begin incurring penalties immediately. Keep in mind that you will have to pay penalties even if you have filed an extension. An extension only gives you more time to file your taxes, not to pay them.
The IRS starts adding to what you owe them monthly until they receive the full amount they are due. This interest can really add up, so it is always in your best interest to pay as soon as possible. In addition to adding interest to your tax debt, the IRS will also charge you what they call a late filing penalty for up to 5 months AND a late payment penalty of 5% per month up to 25%. If you are subject to both penalties, they do provide a cap of 4.5% to the late filing penalty. As you can imagine when you add the interest plus these two penalties, your once somewhat manageable tax bill can all of a sudden become out of control.
One thing to note: you will not be penalized if the IRS owes you a refund.
Other Ways the IRS Can Penalize You
In addition to the interest and penalties that will accrue on your tax debt, if you continue not to pay the IRS, the penalties get even more severe. The IRS has the right to put a lien on your property to secure your tax debt or even seize that property or your wages with a tax lien. Tax levies and liens are extremely serious and have negative consequences for your financial situation and your credit score. The good news is that the IRS is required to notify you in writing before they take this action, so this should not be a surprise.
How Best to Manage the Penalties
The best and most obvious strategy to manage any penalty that the IRS imposes is to pay your tax debt. If you are unable to do so, you should investigate payment options such as an offer in compromise or an installment agreement. You may also want to consider hiring a tax firm that can help you navigate this difficult process.
Success Tax Relief has been helping taxpayers just like you for more than 30 years. We can work directly with the IRS on your behalf and review your return to see if there are ways to save you money. Do not let the penalties mount, give Success Tax Relief a call today at 1-877-825-1179 and take the first step toward financial freedom.