Instructions on Estimating Your Tax Penalty

If you failed to pay your federal taxes on time, the IRS may impose a penalty. This amount is calculated in proportion to the total overdue amount, meaning that if you owe the IRS nothing, you cannot be sanctioned no matter how late you file your tax return or pay your taxes. Although you may be able to escape sanction if you can establish that there was "reasonable cause" for your failure, the IRS does not easily accept such explanations.

Instructions

1

Determine whether you had reasonable cause for failure to pay your taxes on time, such as a natural disaster or an untimely death in your immediate family. Do not plead lack of money, because the IRS will not accept this as an excuse.

2

Determine whether your income tax return was filed late--this is a separate issue from whether you paid late, because it is possible to file on time yet pay late. If it was filed late, decide how many months late it was or will be filed. Remember that the IRS considers a single day late to be equal to a month late, meaning that if you filed your tax return one month and one day late, it will be treated the same as if it was filed two months late.

3

Calculate your "failure to file" penalty, unless you filed your tax return on time but did not pay the full amount due. If you filed on time but did not pay in full, this penalty will be zero. If you failed to file on time, this penalty will be 5 percent of the overdue amount for every month that the IRS considers your tax return to be late, up to 25 percent of your total tax due with the return.

4

Compute an alternative penalty if your return was filed 60 days late or more. In this case, your "failure to file" penalty will be the lesser of $100 or 100 percent of the amount that was due with your tax return. This alternative penalty is triggered by the number of days your tax return was late, not the number of months. For example, the IRS will not count one month and one day late as two months late. The number of days late for this particular penalty is calculated by the date that the IRS received your tax return, not the date it was postmarked.

5

Figure out how many months late your tax was or will be paid, if you filed your tax return on time. On this issue, the IRS considers one day in a month equal to an entire month. This penalty will be zero if you failed to file your return on time, because the IRS will not assess both a "failure to file" and a "failure to pay" penalty against you.

6

Calculate your "failure to pay" penalty, if you filed your tax return on time. This penalty is equal to 0.5 percent of the overdue amount for each month that the IRS considers your payment to be overdue, up to a 25 percent maximum.

7

Choose the "failure to file" penalty if it applies, and the "failure to pay" penalty if it doesn't. Add this amount to your overdue tax. This is the amount you owe the IRS.

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