Tax Help

Are Federal Income Tax Penalties Deductible?

If you have received a tax penalty from the Internal Revenue Service, you may be thinking of any possible way to avoid paying it. Many people wonder whether they can deduct their tax penalties from future taxes. 

While you probably can’t deduct your tax penalties from your taxes, you may be able to reduce the amount you owe in other ways. Read on to learn the answer to “Are federal income tax penalties deductible?” Then contact our team at Levy & Associates for tax assistance. 

Are Federal Income Tax Penalties Deductible? 

The short answer is no — you cannot deduct tax penalties from your federal taxes. If you owe interest on top of tax debt, that interest is also not deductible. 

Why Did I Receive a Tax Penalty? 

You might have received a tax penalty notice from the IRS if you failed to comply with an IRS guideline. People often receive penalties when they do not meet tax deadlines or pay enough in taxes. 

The letter from the IRS will state your exact penalty and the amount you owe. If your penalty was from a failure to pay enough taxes, you’ll owe your remaining tax debt on top of the penalty amount. 

This letter will also indicate how you should pay the penalty. You can mail a check to the IRS or pay the amount owed online. 

If you believe the penalty was in error, you can ask the IRS to remove the penalty. If the IRS denies your request, you can submit a penalty appeal. Our team at Levy & Associates can help you understand whether you are eligible for an appeal and walk you through the process. 

Why Aren’t Tax Penalties Deductible? 

The IRS administers tax penalties to deter individuals from breaking tax laws. As a result, the IRS wants taxpayers to feel the full burden of these penalties — and not simply deduct them from their taxes. 

What to Do When You Receive a Tax Penalty 

If you have received a tax penalty from the IRS, you should pay the penalty as soon as possible. 

The IRS will indicate a deadline by which you must pay the penalty. If you do not meet this deadline, your penalty may accrue interest until you pay it, causing you to owe even more money. 

Some people believe that if they ignore a tax penalty, it will eventually go away. Unfortunately, the IRS has a good memory. If you fail to pay your tax penalty, the IRS may obtain a legal claim against your property, allowing them to seize your wages or assets to cover your debt. 

Other Ways to Reduce an IRS Penalty

While the answer to “Are federal income tax penalties deductible?” is no, you may be able to reduce the amount you owe in other ways. 

The IRS offers a few types of penalty relief for taxpayers:

  • First-time penalty abatement: An exemption for people who have not had tax penalties in the previous three years and have arranged to pay any taxes due
  • Reasonable cause: An exemption for people who have sound reasons for missing tax deadlines
  • Statutory exception: An exemption for people who received incorrect tax advice from the IRS or received a false penalty

If you qualify for any of these relief types, you may be able to forgo some or all of your tax penalty. However, you’ll need to call the IRS and speak with a representative to discuss your eligibility. 

Tax penalties can seem scary, but our team at Levy & Associates is here to help. Contact us today at 800-TAX-LEVY to speak with a tax expert. 

Contact Levy & Associates for Dependable Tax Audit Services

Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.

There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.