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Old 04-01-2011, 12:13 AM
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Recd Corrected 1099-INT after filing -- tiny change

I have already filed my 2010 taxes and recd my fed and state refunds. Yesterday I recd a corrected 1099-INT from a credit union, correctly increasing the interest paid to me by $16. (They had neglected to include a bonus dividend, and I missed it too.) This will result in me owing about $2.50 in additional federal tax.

My CPA says he is too busy to file an amended return until after Apr 18, and that if I go that route he charge me more than the additional tax, penalties, interest. He suggests just waiting for IRS to bill me for the underpayment of taxes.

However, I am assuming there is some penalty, that will be significantly more than the unpaid tax and interest on the unpaid tax.

Can I just send in payment voucher with a check for $3 prior to April 15, and no accompanying amended tax form, and let the IRS keep the change?

I cannot see wasting my time filling out forms over less than $3.



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Old 04-01-2011, 10:31 PM
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“However, I am assuming there is some penalty, that will be significantly more than the unpaid tax and interest on the unpaid tax.”-->No, I don’t think so. If you owe taxes, the IRS will calculate penalties and interest on the amount owed. There are three separate penalties:Failure to File Penalty;Failure to Pay Penalty’ Interest. The failure-to-file penalty is calculated based on the time from the deadline of your tax return (including extensions) to the date you actually filed your tax return. The penalty is 5% for each month the tax return is late, up to a total maximum penalty of 25%, but you are not subject to FTF penalty as long as you file your extended return. As you can see, you must file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return by the due date for filing your calendar year return (usually April 15) or fiscal year return. The failure-to-pay penalty is calculated based on the amount of tax you owe. The penalty is 0.5% for each month the tax is not paid in full, so the penalty( assume that you are one month late on paying your tax) for you ‘d be $16*0.005=$0.08 per month;there is no maximum limit to the failure-to-pay penalty. Interest is calculated based on how much tax you owe. Interest rates change every three months. Currently, the IRS interest rate for underpayment of tax is 4% per year, so your interest ‘d be $16*0.04=.64/12*1=$0.053, so your total penalties and interest‘d be less than $1.00~$1.40 for the first month.
“Can I just send in payment voucher with a check for $3 prior to April 15, and no accompanying amended tax form, and let the IRS keep the change?”-->In general what your CPA said is correct as he is the person that prepared your return; however, in general,NEEDLESS TO SAY, you always need to report the correct amount of income. You can also report any deductions you forgot or recalculate your tax credits based on the new income figures.



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Old 04-02-2011, 11:01 AM
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Thanks for your response. You've actually overestimated the cost of the penalties, as you've used the amount of interest paid that was not reported, rather than the tax owed on that unreported interest... In any case, I can see that the financial impact of just waiting for the IRS to notice the problem is very low.



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Old 04-02-2011, 02:29 PM
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"You've actually overestimated the cost of the penalties, as you've used the amount of interest paid that was not reported, rather than the tax owed on that unreported interest... "---> I guess so. Also note that if both FTF and FTP penalties apply and the FTP penalties apply, the the FTF penalty is reduced by the amount of the FTP penalty. For instance, assume that you filed your return 3 and half months after the due date, and you had not requested an extension of time to file. The failure to file was not due to fraud. You included with your late return a check , say, $2,000, which was the balance of the tax you owed. Disregarding interest, your penalties are as follows: FTP penalty--> 0.5%*$2,000*4 MOs.=$40 PLLUS: FTF penalty--> 5% *$2,000*4 MOs=$400 LESS: FTP penalty--->0.5%*$2,000*4 MO-->($40); net FTF penalty is $360;$400-$40=$360; total penalties--> $400; $360+$40=$400.



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