In: Accounting
Joey is concerned the IRS may allege that he was negligent in his return preparation for 2019. He owed $5,000 when he filed his tax return. He filed the return 3 months late. What is the potential negligence penalty?
ANSWER :
The IRS is referred to as internal revenue service, it is the U.S. federal agency that oversees the collection of taxes-primarily income taxes.
April 15 is tax day in U.S. the date by which individual tax returns must be submitted to the IRS unless that day falls on a weekend or holiday. In this case, the due date becomes the next business day. You must also file for an extension by this date if you need more time to prepare your return.An extension gives Joey an additional six months to file.
IRS charges penalties and interest for Joey for late filing taxes or making payment.
The late payment or failure to pay penalty applies to any portion of federal tax debt that remains outstanding as of the due date.IRS imposes failure to pay penalty of 0.5% of each month or part of a month that the tax goes unpaid,up to a total of 25% of the total you owe.
Penalty for late filing:
Penalty is 5% for each month i.e (5% for 3 months as return is filed late for 3 months) or part of a month that joey return is late,also to a maximum of 25%.The penalty accrues untill you file the return.
He will pay atleast $435 or penalty equal to 100% of the tax you owe whichever is less,if you fail to file within 60 days of due date.As the amount owed is $5,000 and as joey failed to file within 60 days of duedate,penalty will be $435 or $5,000 whichever is less.Hence, the penalty for amount owed is $435.