Robert J. Fedor, Esq., L.L.C.

Penalties and interest: how they impact tax cases

There are many phrases that, when associated with taxes, bring about nightmarish thoughts in a taxpayer. Penalties and interest are two of these phrases, among many, that can cause people to think that their tax filing is in a lot of trouble. Knowing what these terms mean in relation to taxes is very important, so let's talk about penalties, interest and taxes.

First of all, penalties and interest will not apply in years where you are owed a refund. If you owe money to the Internal Revenue Service, though, then penalties and interest can be applied to your filing when you fail to pay. Depending on the situation, the financial consequences will vary.

For example, if you send in your tax filing late, you will be assessed a penalty. This penalty is five percent of the amount you owe per month it is late. The penalty eventually caps when it reaches 25 percent.

Now, if you owe the IRS money -- regardless of whether you sent your filing in on time or not -- the penalty is a little different. Every month that it is late, you owe the IRS one-half of one percent. The penalty eventually caps at 25 percent, just like the late filing penalty.

Obviously, if you are being hit with these penalties, you need to consult with an attorney to ensure that your tax case is being handled properly. Depending on your case, you may even be eligible for an exemption. For example, if a medical emergency or death in the family impacted your ability to pay taxes, you might be exempt from part of (or all) the penalties. 

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