As required by law, the IRS recomputes the interest-rate penalty every quarter at the short-term rate plus three percentage points. Just two years ago, the rate was 3%, but next spring’s filing season will be subject to the recalculated 8% rate. While this rate does not apply to corporations and most W-2 employees have taxes withheld as they go, self-employed workers and independent contractors are especially vulnerable to this increase for under reporting income. The best way to avoid any such penalties is to make estimated payments periodically to cover any potential underpayments.
If you think you are at risk for under reporting income, let us conduct a comprehensive tax analysis to see what the IRS thinks you owe. The sooner you act to avoid these penalties, the better, especially as they increase to 8% next spring.