Understanding how IRS tax penalties work can help you avoid increasing your tax bill with unnecessary fees. Here are the basics of IRS tax penalties and how they are calculated.

Failure to File Penalty

The IRS will charge you a penalty if you do not file your taxes on time. The traditional deadline for filing your taxes is April 15. However, with extensions, you could potentially wait until October 15 to file your taxes. With this penalty, they are going to charge you extra for each month that you are late. This is calculated based upon whether you have an extension or not. For example, if you have an extension to October 15, you would be considered one month late on November 15.

When you do not file your taxes, they are going to charge you a penalty of 5 percent for each month that you are late. This penalty will keep going for five months after your due date. This means that the maximum penalty that will be charged is 25 percent. If you are six months late or a year late, you are still only going to be charged a maximum of 25 percent.

Failure to Pay Penalty

Another type of IRS penalty is when you have already filed your taxes but you refuse to pay them or make arrangements with the IRS. This penalty is going to cost you .5 percent for each month that you are late. With this penalty, there is no maximum to the number of months that they are going to charge you. This penalty also starts accruing from the April 15 filing deadline. It will keep accruing until you pay the entire balance that you owe also.


In addition to charging penalties, the IRS is going to charge you interest on the balance that you owe also. They are going to calculate the amount of interest based on how much money you owe them. The interest is going to be calculated every day that you are late. Interest rates for the IRS change on a quarterly basis. Typically, the interest rates that they charge will be somewhere between 3 and 5 percent per year. 

Frivolous Return Penalty

The frivolous return penalty is an IRS tax penalty that is issued whenever someone tries to get out of paying their taxes based on a frivolous argument. There are a number of different arguments that could be considered frivolous by the IRS. For example, if you try to say that you have denounced your US citizenship which means that you do not have to pay taxes, the IRS will hit you with this penalty. If you try to get around paying taxes by depositing your money into a foreign bank account, they are also going to impose this penalty on you. This penalty can also be incurred if you try to deduct household expenses as business expenses. Currently, the penalty for filing a frivolous return is $5000. 


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