Question

Adam, a self-employed taxpayer, did not have all the information he needed to timely file his 2019 tax return by July 15, 2020. Although he requested an automatic extension, he did not include a payment when he filed the extension. He finally filed his return on August 21, 2020, reporting a $900 balance due. How much must he pay in failure-to-file and failure-to-pay penalties

Answer 1

Step-by-step explanation:

From the failure to pay penalty rules:

For an individual taxpayer, the interest rate = federal rate (short term) +3x

Suppose the tax is not paid within the due date, thus penalty is charged

The late payment penalty = 0.5% of tax owed for each respective month up to 25%

Failure to file penalty rule:

Late filing = 4.5% per month up to 22.5%

Thus, both late penality = 4.5% + 0.5% = 5%

The maximum penalty for failure to pay penality & failure to file = 22.5% + 25%

= 47.5%

Tax Failure to Interest Failure Total Total amount

due file penalty to pay Payable Payable by

$900 $81 $11.81 $22.50 $1015.31 12/8/2021