Isabella files her income tax return 35 days after the due date of the return without obtaining an extension from the IRS. Along with the return, she remits a check for $40,000, which is the balance of the tax she owes. Note: Assume 30 days in a month. Disregarding the interest element, enter Isabella's penalty amount for each, failure to file and failure to pay.

Answer:

Penalty for Failure to Pay:

According to the IRS guidelines, the penalty for failure to pay is usually half of 1% of the unpaid taxes for each month. Since Isabella pays her tax 35 days after the due date, it implies she would be penalised for 2 month late period as 35 days fall in 2 month late period.

The penalty for Failure to pay is calculated as follows:

Penalty for Failure to Pay = Tax amount x Penalty rate x No. of months late

= $40000 x (1/2 of 1%) x 2 months

= $40000 x (1/2 x 0.01) x 2 months

= $40000 x 0.005 x 2

= $200 x 2

= $400

Penalty for Failure to File:

According to the IRS guidelines, the penalty for filing late is usually 5% of the unpaid taxes for each month. Since Isabella files her return 35 days after the due date, it implies she would be penalised for 2 month late period as 35 days fall in 2 month late period.

The penalty for Failure to file is calculated as:

Penalty for Failure to File = (Tax amount x Penalty rate x No. of months late)- Penalty for failure to pay

= ($40000 x 5% x 2 months) - $400

= ($40000 x 0.05 x 2) - $400

= ($2000 x 2) - $400

= $4000 - $400

= $3600

Therefore,Failure to file penalty is $3600 and failure to pay penalty is $400.