46.9 Tax Penalties for Late Filing and Late Payment
Late filing.
If your return is filed late without reasonable cause, the IRS may impose a penalty of 5% of the net tax due for each month the return is late, with a maximum penalty of 25%. If the return is more than 60 days late, there is a minimum penalty, equal to the smaller of $135 and 100% of the tax due. In one case, the IRS tried to impose the minimum penalty on a taxpayer who did not owe any tax because her withholdings exceeded her liability. However, the Tax Court held that the minimum penalty does not apply unless tax is underpaid. The IRS has agreed to follow the decision.
If failure to file is fraudulent, the monthly penalty is 15% of the net tax due, with a maximum penalty of 75%.
If you are subject to penalties for both late payment and late filing, the 0.5% penalty for late payment (but not the 1% penalty) offsets the penalty for late filing during the period that the penalties run concurrently.
Late payments.
If you are late in paying your taxes, a monthly penalty of 0.5% (½ of 1%) is imposed on the net amount of tax due and not paid by the due date. The maximum penalty is 25% of the tax due. The penalty is in addition to the regular interest charge. This penalty does not apply to the estimated tax (27.1). The late payment penalty does not apply if you can show that the failure to pay is due to reasonable cause and not to willful neglect.
A special reasonable cause rule applies if you obtain a filing extension. If by the original due date you paid at least 90% of your total tax liability through withholdings, estimated tax installments, or payment with your extension request, reasonable cause is presumed and the penalty does not apply for the period covered by the extension.
Unless reasonable cause is shown, the 0.5% monthly penalty also applies for failure to pay a tax deficiency within 21 calendar days of the date of notice and demand for payment if the tax due is less than $100,000. If the tax is $100,000 or more, the penalty-free payment period is 10 business days.
The monthly penalty may be doubled to 1%, if, after repeated requests to pay and a notice of levy, you do not pay. The increased penalty applies starting in the month that begins after the earlier of the following IRS notices: (1) a notice that the IRS will levy upon your assets within 10 days unless payment is made or (2) a notice demanding immediate payment where the IRS believes collection of the tax is in jeopardy. If the tax is not paid after such a demand for immediate payment, the IRS may levy upon your assets without waiting 10 days.
Table 46-1 Income Record Keeper
| Type of income | Records Needed | Report on |
| Wages and salaries | Form W-2. Your employer must send your 2012 Form W-2 by January 31, 2013. Attach Copy B to your federal return. Keep Copy C for your records. If you worked for more than one employer during 2012, attach all Copy B forms to your return. | Form 1040EZ, Line 1 Form 1040A, Line 7 Form 1040, Line 7 |
| Tip income | Form 4070 or other record showing your monthly reports of cash tips of $20 or more. Form W-2. Also see 26.7 for reporting FICA taxes on unreported tips. |
Form 1040EZ, Line 1 Form 1040A, Line 7 Form 1040, Line 7 |
| Interest income | Form 1099-INT Form 1099-OID Deposit slips of interest received on money you loaned to others |
Form 1040EZ, Line 2 ($1,500 or less) Form 1040A, Line 8(a); Schedule B, Part I (over $1,500) Form 1040, Line 8(a); Schedule B, Part I (over $1,500) |
| Dividend income | Form 1099-DIV Company statements of dividend payments, especially if stock dividends have been paid |
Form 1040A, Line 9a for total ordinary dividends, Line 9b for qualified dividends eligible for long-term capital gain treatment; Schedule B, Part II (ordinary dividends over $1,500) Form 1040, Line 9a for total ordinary dividends, Line 9b for qualifi ed dividends eligible for long-term capital gain treatment; Schedule B, Part II (ordinary dividends over $1,500) |
| Taxable refund of state and local income tax | Form 1099-G | Form 1040, Line 10 |
| Alimony received | Deposit slips of alimony received and ex-spouse’s Social Security number Copy of divorce or separation decree or agreements | Form 1040, Line 11 if taxable |
| Business income or loss | Business accounting records, deposit slips Business checkbook, deposit slips, invoice receipts, cancelled checks, bank statements Form 1099-MISC | Form 1040, Line 12; Schedule C or C-EZ; Form 8582 if passive activity rules apply; see Chapter 10 |
| Sale of stocks and bonds | Form 1099-B and broker confirmation statements | Schedule D Form 1040, Line 13 |
| Sale of personal residence | Closing papers, records of purchase, improvements; see 29.6. | If taxable gain is realized, Form 8949 and Schedule D |
| Sale of real estate | Closing statement, records of cost and improvements Records of depreciation |
Form 4797 Form 8949 Schedule D Form 1040, Line 13 |
| IRA distributions | Form 1099-R | Form 1040A, Line 11 Form 1040, Line 15 |
| Pensions and annuities | Form 1099-R if you receive annuity payments or lump-sum distributions | Form 1040A, Line 12 Form 1040, Line 16 |
| Commercial annuity income | Form 1099-R | Form 1040A, Line 12 Form 1040, Line 16 |
| Rent income | Account records, checkbook, cancelled checks, and receipts | Schedule E Form 1040, Line 17 Form 8582 if passive activity rules apply |
| Royalty income | Form 1099-MISC | Schedule E Form 1040, Line 17 |
| Partnership income | Schedule K-1, Form 1065 | Schedule E Form 1040, Line 17 |
| Beneficiary of trust or estate | Schedule K-1, Form 1041 | Schedule E Form 1040, Line 17 |
| S corporation | Schedule K-1, Form 1120S | Schedule E Form 1040, Line 17 |
| Unemployment compensation | Form 1099-G | Form 1040A, Line 13 Form 1040, Line 19 |
| Social Security benefits | Form SSA-1099 | Form 1040A, Line 14 Form 1040, Line 20 |
| Gambling income | Form W-2G, diary or other record showing wins and losses, losing tickets | Form 1040, Line 21 |
| Other income | Form 1099-MISC, records of amounts received, date received | Form 1040, Line 21 |
| “Kiddie” tax on income of a child | Child’s Forms 1099-INT, 1099-DIV, and 1099-OID | Form 1040, Line 44 Form 8615 if income is reported on child’s return Form 8814 if parent elects to report child’s income on Form 1040 |
Table 46-2 Deduction Record Keeper
| Type of deduction | Records Needed | Report on |
| Exemptions for dependents | Records of support contribution for food, lodging, medical expenses, such as cancelled checks, diary entries. Birth certificates in case age of a child is questioned. School attendance record if student status is questioned. Form 8332 allowing noncustodial parent to claim the exemption. This form must also be attached to return by noncustodial parent claiming exemption; see 21.7. Forms 2120 if dependent’s support is shared; see 21.6. |
Form 1040A, Line 6(c) Form 1040, Line 6(c) |
| Educator expenses-assuming deduction is extended to 2012 | Records of expenses/purchase and business use | Form 1040A, Line 16 Form 1040, Line 23 |
| IRA deductible contribution | Trustee’s statements of contribution, copy of plan | Form 1040A, Line 17 Form 1040, Line 32 |
| Student loan interest deduction | Bank statement showing interest paid | Form 1040A, Line 18 Form 1040, Line 33 |
| Tuition and fees deduction-assuming deduction is extended to 2012 | Student’s name and taxpayer identification number, cancelled checks and statements of tuition and enrollment fees. For dependents, records of support contributions. | Form 8917 Form 1040A, Line 19 Form 1040, Line 34 |
| Health savings account deduction | Trustee’s statements and Form 5498-SA, showing contributions | Form 1040, Line 25 Form 8889 |
| Moving expenses | Cancelled checks or receipts for expenses incurred, diary or log | Form 1040, Line 26 Form 3903 |
| Deductible part of self-employment tax | Schedule SE, Form 1040 | Form 1040, Line 27 |
| Self-employed health insurance premium | Cancelled check of payment, copy of contract, insurance statement | Form 1040, Line 29 |
| Keogh, SEP, or SIMPLE contribution for yourself | Trustee statement, copy of plan | Form 1040, Line 28 |
| Penalty on early withdrawal of savings | Form 1099-INT | Form 1040, Line 30 |
| Alimony deduction | Cancelled checks, copy of divorce or separation decree, written separation agreement, ex-spouse’s Social Security number | Form 1040, Line 31 |
| Domestic production activities deduction | Business records, Forms W-2 | Form 1040, Line 35 Form 8903 |
| Employee expenses | Diary logs, receipts, copy of accounting to employer | Form 2106 Schedule A, Line 21 |
| Home office expenses | Records of expenses, business use, and allocation | Form 8829 if self-employed; Schedule C, Line 30 Form 2106 if an employee; Schedule A, Line 21 |
| Medical and dental expenses | Cancelled checks, statements, prescriptions; log of travel expenses and lodging costs | Form 1040 Schedule A, Lines 1–4 |
| Taxes—state and local income, general sales, personal property, real estate | Form W-2 for withholding of income tax Cancelled checks Credit card receipts showing sales tax Bank statements of property taxes paid by bank (mortgages) Form 1099-DIV for foreign tax Form 1099-INT or tax receipt for foreign tax withheld at source |
Form 1040, Line 40 Schedule A, Lines 5–9 |
| Mortgage interest | Bank statement showing interest paid Form 1098 | Form 1040 Schedule A, Lines 10 and 11 |
| Points | Copy of bank statements, canceled checks | Form 1040 Schedule A, Lines 10 and 12 |
| Qualified mortgage insurance premiums-assuming deduction is extended to 2012 | Bank mortgage statements; cancelled checks | Form 1040; Schedule A, Line 13 |
| Cash donations | Cancelled checks, receipt from charity | Form 1040; Schedule A, Line 16 |
| Volunteer expenses for charitable organizations | Log of travel, cancelled checks showing purpose | Form 1040 Schedule A, Line 16 |
| Property donation | Description of property, records of fair market value and cost. Receipt from organization. A bank statement or written receipt from organization to substantiate all cash donations. Cancelled check is not sufficient. If car is valued at over $500, a written acknowledgment showing gross proceeds if the organization sold the car. If in excess of $5,000, qualified appraisal report and statement from organization |
Form 1040 Schedule A, Line 17 |
| Casualty and theft losses | See 18.8. For thefts, statements from witnesses, police records, or a newspaper account of the crime might help. | Form 1040 Schedule A, Line 20 Form 4684 |
| Gambling losses | Losing tickets or receipts, diary showing daily wagers, wins, and losses | Form 1040 Schedule A, Line 28 |
| Union dues | Wage statements showing withholding for dues or cancelled checks | Form 1040 Schedule A, Line 21 |
| Unreimbursed travel and entertainment expenses | Diary log and receipts kept according to the rules of 20.26 | Form 2106 Form 1040; Schedule A, Line 21 |
| Unreimbursed auto expenses if you are employed | Statement from employer requiring use of car Mileage log Receipts of expenses if actual costs are claimed Cost records of auto if depreciation is claimed |
Form 2106 Form 1040 Schedule A, Line 21 |
| Investment expenses | Cancelled checks | Form 1040; Schedule A, Line 23 |
| Safe deposit box fee | Bank statements | Form 1040; Schedule A, Line 23 |
| Tax preparation fees | Cancelled checks | Form 1040; Schedule A, Line 22 |
Table 46-3 Tax Credit Record Keeper
| Type of credit | Records Needed | Report on |
| Earned income credit | Form W-2 if an employee, Schedule SE if self-employed, to show earnings | Form 1040 EZ, Line 8 Form 1040A, Line 38; Schedule EIC Form 1040, Line 64; Schedule EIC |
| Child and dependent care expenses | Cancelled checks for amounts paid to care for child | Form 1040A, Line 29; Form 2441 Form 1040, Line 48; Form 2441 |
| Credit for the elderly or the disabled | Physician’s statement of condition | Form 1040A, Line 30; Schedule R Form 1040, Line 53; Schedule R |
| Child tax credit and additional child tax credit | Records of support contribution Birth certificates in case age of a child is questioned School attendance record if student status is questioned |
Form 1040A, Line 33 and Line 39 Form 1040, Line 51 and Line 65 Form 8812 |
| Education credits | Student’s name and taxpayer identification number Cancelled checks and statements of tuition and enrollment fees For dependents, records for support contributions |
Form 1040A, Line 31 and Line 40 Form 1040, Line 49 and Line 66 Form 8863 |
| Residential energy efficient property credit | Certification—if provided by manufacturer—and proof of purchase | Form 1040 Line 52; Form 5695 |
| Foreign tax credit | Form 1099-DIV; foreign tax returns or statements | Form 1116 Form 1040, Line 47 |
| Nonrefundable credit for prior year alternative minimum tax | Copy of prior year’s Form 6251 | Form 1040, Line 53 Form 8801 |
| Refundable credit for prior year alternative minimum tax | Copy of Form 6251 for 2011 | Form 1040, Line 71 Form 8801 |
| Credit for federal taxes withheld | Form 1099 Form W-2 Form W-4V |
Form 1040EZ, Line 7 Form 1040A, Line 36 Form 1040, Line 62 |
| Credit for estimated tax payments | Cancelled checks and copy of Form 1040-ES | Form 1040A, Line 37 Form 1040, Line 63 |
| Saver’s credit | Record of retirement plan contributions | Form 1040A, Line 32 Form 1040, Line 50 Form 8880 |