Help for Hurricane Sandy Victims

Hurricane Sandy devastated large portions of the East Coast late in October. It left many people without homes; others struggled for days or weeks to regain power and have access to gas for their vehi...

Proving the Amount of a Disaster Loss

Hurricane Isaac and the devastation it wrought to the Gulf Coast region in August is a reminder that a disaster can strike at any time in any location. Hopefully, you have adequate insurance, such as ...

If your personal car is damaged or destroyed in an accident and the damages are not fully covered by insurance or other reimbursement, you can deduct your loss as a casualty loss, provided you itemize...

Homeowner's insurance may not cover all of your losses resulting from a storm or other unexpected catastrophe. Fortunately, the tax law can help by allowing you to deduct the uninsured loss. Here's wh...

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Tax Tips

Late Payment Penalties

Under the terms of a loan, if a payment is late for any reason the borrower may owe additional amounts called late payment penalties. There are different types of late payment penalties: a flat fee, such as $25, charged without regard to the amount of the late payment or how long it is outstanding, and a percentage fee, fixed with regard to the late payment. The percentage fee continues to be accessed each month that a payment remains delinquent. Only late payment penalties qualifying as “interest” may be deductible.

If you are late in making a payment, you may be charged a penalty by the lender. Generally, penalties for delinquent payments are treated as deductible interest, which can be written off if you itemize your deductions.

Your monthly mortgage payment is $1,000, which is subject to a 2 percent late payment penalty. Due to unexpected financial reverses, you fail to make your payment for June, July, and August. In September, you’re back on your feet and pay up all outstanding amounts, including the late payment penalties of $120 (June payment: 2% of $1,000 × 3 months; July payment: 2% of $1,000 × 2 months; August payment: 2% of $1,000 × 1 month). Since the late payment penalties are an interest charge, they are deductible.

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Factoids
FACT: 

The average tax rate for all income tax returns filed in 2006 was 13.8% (up from 13.6% in 2005). The top 5% of filers (those with adjusted gross income over $153,542) paid 60.1% of the total federal income taxes paid by all filers.

Source: Winter Statistics of Income Bulletin

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