Finance

Is It Be Possible For IRS Penalties To Be Tax Deductible?

Penalties are commonly assessed when the person fails to pay or file a tax or for a dishonored cheque. This can vary depending on the type of violation and the time till you pay the entire amount or until the taxpayer is allowed an approved payment plan. But are IRS penalties tax deductible?

According to the US tax code, taxpayers are not allowed to deduct any penalties that are assessed by the IRS (Internal revenue services). This is to discourage people to not neglect their obligations for paying the tax and filing returns.

Though the taxpayers are not allowed to deduct the penalties, they may qualify to get some relief from these extenuating circumstances. So if this is approved by the IRS, you might get some relief from all or part of the penalty. Only the interest amount will be accumulated till you pay the total amount.

Apart from this, in case of a failure to pay penalties, the IRS will also provide installment agreements that can help you pay the outstanding balance and will also stop further assessment of failure-to-pay penalties.

Penalties are also assessed for dishonored cheques or when you fail to file your tax return by the due date then the penalties may vary depending on the type of violation. In many cases, taxpayers can extend their due date or their deadline for the payment after getting approval from the IRS.

Legal fees deductibility

When there is a legal expense incurred in attempting to collect the tax income or paid in collection or refund of any tax, then it is not deductible.

Other Penalties

Other penalties which are related to business activities can be deducted by the companies as a tax return. For example, if there is a manufacturing company has to pay a penalty on the basis of non-performance on a construction contract then it is deductible as a business expense.