The tax preparation process can be overwhelming. It is not only time consuming but can be nerve wrecking for some, as owing taxes is not good news to hear. While many are able to continually pay year after year, some may hit a roadblock. He or she is finding him or herself in financial ruin and knows that they cannot make these upcoming payments. Failing to make payments can trigger the tax collection process, which means addressing the penalties and interests that will likely ensue.
When a taxpayer owes and fails to pay, this is when penalties and interest will apply. When interests are charged, they are charged quarterly, and the rate can range from 9 to 4 percent. With regards to penalties, this depends on the circumstances surrounding the matter. For filing late, this penalty is roughly 5 percent per month; however, it could be as much as 25 percent of the tax shown on the return. Additionally, the penalty for paying late is one half of one percent of the unpaid amount due per month.
While there are clear parameters set for applying penalties for filing late, the IRS recognizes that personal problems could impact one’s ability to file on time. This could include matters such as illness, the death of a family member or losing financial records in a natural disaster.
Although no one wants to deal with paying interest and penalties for filing taxes late or failing to pay the amount due, these situations do come up. Therefore, it is important to understand if there are ways to waive these penalties or obtain an installment agreement. This could help resolve these tax collection matters, helping a tax payer to settle all of their debt.