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How to avoid IRS tax penalties this tax filing season

The IRS has issued guidance to taxpayers on avoiding penalties and interest charges as the April 15, 2024 filing deadline nears.

In a comprehensive four-part guide aimed at aiding taxpayers with their yearly returns, the IRS underscores the option of online tax payment through various methods before next month’s deadline. Additionally, advice is offered for individuals unable to pay their taxes in full at present.

Income Tax

IRS data reveals that despite the increasing trend of electronic filing, millions still opt for traditional paper filing methods. In 2022, approximately 24 million individual and estate tax returns were submitted via paper, whereas 153 million were filed electronically. Newsweek has reached out to the IRS for further comment.

Paying taxes via mail or cash can prolong the process, potentially leading to late filing, especially if errors are encountered in returns.

Tax penalties are outlined by the IRS

  • A late payment results in a five percent levy on unpaid taxes per month or part thereof
  • The penalty is capped at 25 percent of the total unpaid taxes
  • IRS advises that interest and late payment penalties apply to payments made after April 15, stressing the importance of making timely payments to mitigate penalties and interest charges.

Various online payment methods are highlighted by the IRS

  • Direct Pay: A free service enabling online tax payments directly from one’s bank account with immediate confirmation.
  • IRS2Go app: Designed for mobile phone users wishing to pay their taxes.
  • Electronic Funds Withdrawal (EFW): Allows taxpayers to file and pay electronically from their bank accounts when using tax preparation software or professional services.
  • Electronic Federal Tax Payment System: Utilized for phone and online payments and suitable for individual and business tax filings.

Advice for taxpayers unable to pay in full

  • Except for eligible victims of recent natural disasters with an extended payment deadline until October 15, the IRS advises taxpayers to file and pay what they can to minimize penalties and interest.
  • Taxpayers unable to pay in full are encouraged to make partial payments and explore payment options or loans to cover their owed taxes.
  • The IRS warns that in many cases, loan costs may be lower than the cumulative interest and penalties imposed by federal law. Taxpayers are urged to respond promptly to notices as unpaid tax bills accrue more interest and fees over time.

Other options for taxpayers facing financial difficulties

  • Offer in Compromise: Provides the opportunity to settle tax debt for less than the full amount owed if paying the full liability would result in financial hardship.
  • Temporary Delay of Collection: If unable to pay any tax debt, the IRS may classify the account as currently not collectible and temporarily suspend collection until the taxpayer’s financial situation improves.
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