If the IRS has recently claimed that you owe a penalty for late filing, late payment, or missed employment tax deposits, pause before making any payment. You may not have to pay that penalty at all.
The IRS often imposes steep penalties for filing tax returns late, failing to pay taxes on time, or not depositing employment taxes correctly. However, several strategies can help you get those penalties removed—and in some cases, even refunded if you have already paid them.
Common IRS Penalties and Their Impact
Some of the most common penalties include:
- Late filing penalty. For individual or C corporation returns, this can be up to 5 percent of the unpaid tax for each month the return is late, maxing out at 25 percent. Partnerships and S Corporations can incur penalties of $245 per partner or shareholder per month.
- Late payment penalty. This penalty is generally 0.5 percent of the unpaid tax per month, maxing out at 25 percent.
- Penalty for failure to deposit employment taxes. This penalty ranges from 2 percent to 10 percent, depending on how late the deposit was.
Strategies for Relief of Penalty
Here are a few ways to potentially avoid or reduce these penalties:
First-time abate. If this is your first time receiving a penalty—or your first time in over three years—you may be eligible for a “first-time abate.” This is one of the easiest and most common ways to remove a penalty. It applies to failure-to-file, failure-to-pay, and failure-to-deposit penalties. As long as your tax compliance history is clean, you may qualify.
Partnership relief. If your business is a partnership with 10 or fewer partners, and if all partners filed their tax items on time, you may be eligible for relief under Revenue Procedure 84-35. This is a little-known but effective option.
Reasonable cause. If neither of the first two options applies, you can request penalty relief by showing that there was a reasonable cause for your late filing or payment. This could include illness, a natural disaster, or other significant life events that impacted your ability to meet IRS deadlines.
Next Steps
If you believe any of the penalties you’re facing may qualify for relief, you may be able to remove those penalties with a simple phone call. Using the right approach and trigger words when speaking to the IRS can make all the difference.
If you have already paid the penalties, you can use IRS Form 843 to file for a refund if you do so within three years of filing the return or within two years of paying the penalty.
How We Can Help
Sterling Tax and Accounting is here to help your business with tax planning! Our comprehensive approach to tax planning helps reduce your overall tax liability and keep more money in your pocket. If all your accountant does is file your taxes, chances are they are making you pay more than your fair share of taxes.
Learn how to proactively save on taxes by scheduling a call with our tax planning specialists.
Our tax planning, accounting & business services help you stay on track. Sterling Tax & Accounting will work with you to optimize your business and minimize your taxes. We will work to provide you and your business with the tools and resources you need to build a solid tax and business foundation. We’re a trusted CPA Firm in Sarasota, Florida. We serve clients all over the US, and proactively work to minimize their taxes.
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