Question

Ella carelessly filed her taxes 10 months late. She owed $100,000 in taxes. What is Ella's late filing penalty?

Answer 1

Calculation of Ella’s Late filing penalty

Tax due = $100,000

Time period since due date of filing= 10 months

Minimum penalty:

Since return is filed after more than 60 days of the due date thus minimum penalty shall be-

Lower of    (a) 100% of tax i.e., $100,000

                    (b) $210

Thus, minimum penalty = $210

Actual Penalty

Penalty per month= 5%, subject to maximum of 25% in aggregate

Since return is filed 10 months late, penalty shall be 25% (and not 50%)

Thus, Penalty = $100,000 * 25%= $25,000