Penalty Relief from the IRS For Underpayment of Taxes
Filing your tax return may feel like a once-a-year fiasco, but your interactions with the IRS actually continue throughout the year. If you pay via withholdings, you may be blissfully unaware of all this — but the “ignorance is bliss” concept definitely doesn’t apply if you’re supposed to make estimated payments.
Unfortunately, if you’re like many self-employed professionals or business owners, you neglect estimated payments during the year and are forced to pay up come tax season. This approach might seem more convenient, but it comes with a definite downside: a hefty penalty.
The good news? You just might qualify for penalty relief, even if you’ve underpaid your taxes. Keep reading to learn how:
Waiving the IRS Penalty
The IRS makes it possible to waive underpayment penalties in a few select circumstances. If a casualty event or disaster stood in your way, you can request a waiver while completing Form 2210. You’ll need to provide a statement explaining your circumstances and how they contributed to your lack of timely payments.
This waiver also applies to taxpayers who have recently retired (after the age of 62) or become disabled, as long as the underpayment was based on reasonable cause rather than willful neglect. Under this approach, documentation of your retirement or disability will be required.
Annualized Installment Method
If you don’t qualify for a waiver, you may be able to reduce or eliminate your penalty by using the annualized installment method. This is a common solution when income is received unevenly throughout the year. Under this approach, you can reconfigure payments based on when you actually earn the bulk of your income.
If you’re struggling to deal with estimated taxes and associated penalties, don’t hesitate to ask for help. Our team at the Highland Tax Group can offer the guidance you need. Reach out to learn more.