Course: Income Tax Planning
Lesson 1: Introduction to Taxation
How is the answer to question #5 (below) $810?
Jerry’s taxes were due April 15th. He filed his return in October of the same year and paid his $3,000 two months later. Would Jerry be subject to a penalty? How much?
No. Jerry is not subject to a penalty because he paid within one year.
Yes. Jerry’s penalty would be $810.
Yes. Jerry’s penalty would be $960.
Yes. Jerry’s penalty would be $1,050.
I calculated $780
(4.5%)(5 months)($3,000) = $675
(.5%)(7 months)($3,000) = $105
$675 + $105 = $780
These can be confusing at times. The calculation is below.
He pays a 5% per month combined penalty (failure to file + failure to pay) for the first 5 months
- April through August
- 25% x 3000 = $750
The failure to file penalty stops in August, but he must pay the failure to pay penalty of .5% per month for 4 months.
- Sept – Dec
- .5% x 4 = 2%
- 2% x 3000 = $60
If we combine the two penalties, it totals $810.