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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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My husband failed to file taxes for the years of 02, 03,

Resolved Question:

My husband failed to file taxes for the years of 02', 03', 05', and 06'. We've had them prepared and are ready to mail, however I was wondering if anyone can help me estimate the penalties and interest that will be due. In 02' he owed 53.00, in 03' and 05' there were refunds to to him, (I know the 03' refund is forfeited)and in 06' he owes 2583.00.
Submitted: 8 years ago.
Category: Tax
Expert:  Merlo replied 8 years ago.
Hello Littlemiss,

The penalties and interest that are imposed on late returns are as follows:

1. Late filing penalty - 5% per month, not to exceed 25% of the total tax due.

2. Late payment penalty - .05% per month, not to exceed 25% of the total tax due.

3. Interest - The rate changes quarterly and is equal to the short term rate plus 3%. Interest is compounded daily.

Because of the interest rate compounding factor and the fact that the interest rate changes quarterly, it will be impossible to give you an exact estimate. However, just assuming an average interest rate of 6%, this is what you might expect to pay.

On the $53.00 that he owes from 2002, his penalties and interest will be around $50.00. On the $2,583 that he owes for 2006, his penalties and interest should be around $1,300.

He will not owe any penalties or interest for the years 2003 and 2005 since he had refunds coming in those years.

The late filing penalty is the stiffest penalty, and automatically accounts for an additional 25% of the tax due if you are more than 5 months late in filing.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you.

Customer: replied 8 years ago.

The late filing penalty of 25% is in addition to the estimated penalty figure of 1350.00 for both years he owes? Or was that part of that figure?

Expert:  Merlo replied 8 years ago.
Hello again Littlemiss,

The $1,350 I estimated includes everything. I only added the comment about the late filing penalty so that you would understand where the majority of this penalty is coming from.

If this was helpful please press the Accept button so I receive credit for helping with your question.

Thank you again and let me know if you need more help.
Customer: replied 8 years ago.
Great. Thank you so much and please forgive my ignorance. Am I correct in assuming that's per year. The 50 dollars for 02 and the 1300 for 06?
Expert:  Merlo replied 8 years ago.
The $50 and the $1,350 should be the total amount of penalty and interest that he owes for both of those years.

Merlo and 3 other Tax Specialists are ready to help you
Customer: replied 8 years ago.
Thank you again for your input.
Expert:  Merlo replied 8 years ago.
Thank you, XXXXX XXXXX me know if you have any more questions.

Customer: replied 8 years ago.
Are there any online calculators out there to help figure these amounts or is it all just a guessing game. The reason I ask is because I have been researching ALL day to the point that my brain is on information overload! It's so confusing to me. I have read that there are penalties, interest and interest charged on the penalties also. So if you don't mind can you explain to me how the interest is calculated. This is definitely a lesson learned! OMG!!!!!
Expert:  Merlo replied 8 years ago.
Hello again Littlemiss,

That's why I said in my original post that it would be nearly impossible to give you an exact estimate of what you will owe, mainly because of the interest rate factor.

The interest rates change quarterly, and the interest does apply to the penalties, and it is compounded daily. There are not calculators on the internet that I know of that would help you with this calculation, at least not for free. I have seen some programs that claim they will calculate this for you, but they cost $150 or more.

Here is a link to a website that lists the historial interest rates used by the IRS going back to 1992, but it would still be a very tedious and almost impossible task to come up with an exact figure using these rates, but it might be of some help to you.

Customer: replied 8 years ago.

Yes...that was one of the many sites i visited today. I did however find this little tool.....would you say this calculation is pretty accurate? Check it and tell me what you think....

Expert:  Merlo replied 8 years ago.
I just took a quick look at that website, and that strictly pertains to New York taxes of various types. I do not know if the state of NY imposes penalties and interest at the same rate as the IRS, so I really cannot tell you how accurate this would be.

When you actually file your returns, the IRS will notify you of the exact amount you owe. I realize that you are trying to get a little bit ahead of the game here and do some estimating on your own so you will know what to be prepared for, but it is really almost an impossible task. That's why these calculators that are available cost so much, because the people selling that software are quite aware of the fact that most people cannot do this calculation on their own.

I really think that the estimates I gave you earlier are going to be fairly close, or at least within a couple of hundred dollars. My suggestion would be to wait and see what the IRS ends up billing you for. If it is significantly higher than the figures I gave you ($1350 total), then you might want to try doing some research on your own. But in the meantime, you could drive yourself crazy trying to come up with the exact numbers here.

I honestly wish I could help you more with this, but the calculation is just way too detailed to try and do anything except give a rough estimate of what to expect.

Customer: replied 8 years ago.
You are so right on so many different levels! Because at this point in the game I have driven myself crazy trying to figure all of this out. It's just a little more comforting to know where you are in the crazy world of the irs rather than have it sneek up on you. You have been a great help and as my husband putts it....what will be will be! Thanks again and have a great night!