How many of you know that the IRS charges penalties on top of the amount you owe? That's right. One penalty is called 'Failure to File' penalty. And the IRS charges 25%. That's 25% added to your tax liability. They assess it at 5 percent per month of your balance due (or any part of a month, even if it's just one day).
So if you owe let's say $5,000, add 25% and now you owe an additional $1,250 in just 5 months on top of the $5k you originally owed. Why give Uncle Sam more money than what they are due? Why?
And, that 25% penalty applies to each tax year you haven't filed and you owe. So if you haven't filed for let's say 5 years, that's 5 years of added penalties. Is that what you really want? Of course not! Folks, I'll say it again, 'It's never too late to file'.
There's an old saying in this business, "Don't ignore the IRS: Because the key to surviving the IRS is realizing the IRS will not ignore you." Ain't that the truth!
Now, let's talk a little more about penalties. So let's say you have filed and let's say that you owe $10,000 in taxes from 2011. Well, here's another penalty the IRS loves to charge. It's called 'Failure to Pay' penalty. And that as well is capped at 25%. So you end up having to pay up to 25% more on top of the initial amount you owed. The Failure to Pay penalty is assessed to you at the rate of ½% on a monthly basis. So that means it will take 4 years and 2 months to complete the full 25% penalty.
Now remember, my example is for the year 2011. Let's say you owe again for 2012 and don't pay, the 25% Failure to Pay penalty kicks in and is added to that amount as well. These penalty amounts folks add up real quick and can add quite a lot to your tax liability.
So, quick recap. Failure to File penalty, 25% and Failure to Pay penalty 25%. Now If both penalties apply in any month, you do get a small break on the failure-to-file penalty. The IRS will reduce it to "only" 22.5 percent. In that case, the total penalty for failure to file and failure to pay combined could add 47.5 percent to your tax bill for up to 5 months if you don't do anything about it. And it's all perfectly legal.
And by the way, If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
And keeping in mind that the IRS is the world's largest debt collector, they will do anything they can to collect what they believe is owed.
On more quick point and then we'll talk about how to fix these problems. On top of all the penalties, the IRS is also charging you interest on the money you owe from the date it is due until the date of final payment. Interest is computed based on the federal short-term rate plus 3 percentage points. The current rate is 3%. Now that may not sound like a lot but that 3% Interest iscompounded daily. And the interest is also added to the penalties as well, AND as time goes on, interest is being compounded on previous interest already charged. Got that? That's almost like a double taxation.
So that means that every day, 365 days a year you owe more money to the IRS than you did the day before, and again, it adds up quickly.
Now in one respect we're very lucky today because interest rates across the board are generally low even though the new Fed Chairperson Janet Yellin recently said the Fed's may raise rates by mid 2015.
Let me give you some examples of interest rates from the past. In the first quarter of 2009 the interest rate by the IRs was 5%. The first quarter of 2008 it was 7%. In the last half of 2006 it was 8%. So you can see interest rates charged by the IRS fluctuate up and down. So if you owe today where the rate is 3%, what's the rate going to be next year or the year after that? I don't know but why wait to find out.
Now, nobody can stop the IRS from charging you interest. Not me, not you, not any company. So don't be fooled by any company who claims they can stop interest from accruing, it can't happen. OK?
Article Source: http://EzineArticles.com/8419763
So if you owe let's say $5,000, add 25% and now you owe an additional $1,250 in just 5 months on top of the $5k you originally owed. Why give Uncle Sam more money than what they are due? Why?
And, that 25% penalty applies to each tax year you haven't filed and you owe. So if you haven't filed for let's say 5 years, that's 5 years of added penalties. Is that what you really want? Of course not! Folks, I'll say it again, 'It's never too late to file'.
There's an old saying in this business, "Don't ignore the IRS: Because the key to surviving the IRS is realizing the IRS will not ignore you." Ain't that the truth!
Now, let's talk a little more about penalties. So let's say you have filed and let's say that you owe $10,000 in taxes from 2011. Well, here's another penalty the IRS loves to charge. It's called 'Failure to Pay' penalty. And that as well is capped at 25%. So you end up having to pay up to 25% more on top of the initial amount you owed. The Failure to Pay penalty is assessed to you at the rate of ½% on a monthly basis. So that means it will take 4 years and 2 months to complete the full 25% penalty.
Now remember, my example is for the year 2011. Let's say you owe again for 2012 and don't pay, the 25% Failure to Pay penalty kicks in and is added to that amount as well. These penalty amounts folks add up real quick and can add quite a lot to your tax liability.
So, quick recap. Failure to File penalty, 25% and Failure to Pay penalty 25%. Now If both penalties apply in any month, you do get a small break on the failure-to-file penalty. The IRS will reduce it to "only" 22.5 percent. In that case, the total penalty for failure to file and failure to pay combined could add 47.5 percent to your tax bill for up to 5 months if you don't do anything about it. And it's all perfectly legal.
And by the way, If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
And keeping in mind that the IRS is the world's largest debt collector, they will do anything they can to collect what they believe is owed.
On more quick point and then we'll talk about how to fix these problems. On top of all the penalties, the IRS is also charging you interest on the money you owe from the date it is due until the date of final payment. Interest is computed based on the federal short-term rate plus 3 percentage points. The current rate is 3%. Now that may not sound like a lot but that 3% Interest iscompounded daily. And the interest is also added to the penalties as well, AND as time goes on, interest is being compounded on previous interest already charged. Got that? That's almost like a double taxation.
So that means that every day, 365 days a year you owe more money to the IRS than you did the day before, and again, it adds up quickly.
Now in one respect we're very lucky today because interest rates across the board are generally low even though the new Fed Chairperson Janet Yellin recently said the Fed's may raise rates by mid 2015.
Let me give you some examples of interest rates from the past. In the first quarter of 2009 the interest rate by the IRs was 5%. The first quarter of 2008 it was 7%. In the last half of 2006 it was 8%. So you can see interest rates charged by the IRS fluctuate up and down. So if you owe today where the rate is 3%, what's the rate going to be next year or the year after that? I don't know but why wait to find out.
Now, nobody can stop the IRS from charging you interest. Not me, not you, not any company. So don't be fooled by any company who claims they can stop interest from accruing, it can't happen. OK?
Article Source: http://EzineArticles.com/8419763
