6 Tips to Avoid IRS Penalties, Interest and Filing Fees This Tax Season

With Federal and various State tax revenues in decline, the IRS and State tax collectors are not letting any taxpayer fall through the cracks.

In fact, if anything the IRS’s computerized Automated Collection System (ACS) is probably better than ever with all the funding the IRS has received from the Federal stimulus.

Here are a few tips to avoid IRS penalties, interest and general filing fees:

1. File On Time: The IRS can penalize you up to 5% per month up to a total 25% of taxes owed

2. If You Can’t File On Time: Request a 60 day extension to avoid the 5% to 25% penalty on taxes owed

  • Use Form 4858 or use the IRS’s FreeFile to E-File extension for free (no income min).
  • Include 90% or whatever you can to reduce the underpayment Penalty (.5%).

3. File for Free Or File for Less – Take advantage for free government filing programs or various tax software programs to reduce professional filing fees:

  • If you make less than $56k or less in 2008 Use IRS’s FreeFile (like TurboTax but free)
  • If you make more than $56k use a tax software program like TurboTax or TaxCut as typically it is much cheaper than using a CPA or tax accountant.

4. Can’t Pay In Full– Request an IRS Installment Agreement (IA) or Apply for a Bank Loan.

  • Use Form 9465 or Use the Online Payment Agreement Application to request an IA if you cannot obtain or do better than 7% (current IRS interest rate plus 3% penalty) with a bank loan.
  • Don’t repay the IRS without an Installment Agreement or Loan as interest will be 10% or higher.

5. Abate Penalties With Reasonable Cause: In some cases, if you have good reason you can file to have underpayment and filing penalties abated or removed. Some reasons that the IRS may accept are:

  • You experienced a death by a close family member or divorce
  • Your records were destroyed which was out of your control
  • A natural disaster struck
  • You were incarcerated or suffering a major illness
  • You experienced a lengthy time of unemployment.

6. Contact the Taxpayer Advocate Service– This is an “independent” organization, part of the IRS, which can help you with reducing your tax penalties. Call them at 1-877-777-4778 or 1-800-829-4059.

Penalties are used by the IRS in order to scare taxpayers to remain in compliance with US tax laws.

With the increase in technology used by the IRS they have been assessing individuals penalties at an increased rate.  The above tips can help you avoid interest, filing fees, and the most common penalties given by the IRS.

Just remember that if you know you are going to have a problem filing or paying your taxes there are solutions offered by the IRS to avoid or decrease the penalties associated with common IRS problems.

The following is a guest post from Manuel Davis. Manuel is a tax accountant and writer who has been helping individual taxpayers with IRS back taxes related problems for years (www.backtaxeshelp.com). On his company’s website you can find more information on details for various tax resolution filings or you can request professional help.

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Published or updated April 7, 2014.


  1. If you are self-employed, it is also worth noting that you can be protected from penalties related to not paying enough on your estimated taxes by properly following guidelines by the IRS, or by paying 100% of what you owed in the previous year’s taxes.
    .-= Miranda´s last blog ..Friday Fun Video: Geico, Motown Style =-.

  2. Jason Martin says:

    The biggest saving I have found stem from not loaning the government my money at zero percent interest. It takes some discipline, but not deducting taxes from my income affords me the opportunity to put that money to work throughout the course of the year to generate more income. That marginal income doesn’t change my tax bracket so, I’m essentially paying less in taxes by virtue of making more income at the same tax rate. When my tax bill comes due, I have the option of using my cash, or borrowing the money at a lower interest rate, and writing off the interest payments the following year.
    .-= Jason Martin´s last blog ..Money In Perspective =-.

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