Today TaxMama hears from Gary in Arizona with this question. “I am making payments to the IRS, and they charge interest and a penalty. Can I deduct these two from my income tax?”
That’s an excellent question.
And I am surprised it’s not asked more often.
When it comes to penalties, you can never deduct penalties at all. Not IRS penalties, not traffic tickets, not fines, etc. You can’t deduct them on your personal tax return or your business tax return.
Then there’s the interest. Personal interest deductions disappeared with the Tax Reform Act of 1986. So sorry, there’s no deduction there.
Now, if the interest were strictly on taxes on business profits…you should be able to deduct the interest on your Schedule C. But naturally, you can’t. See Enrolled Agent Dave Fazio’s note in the Comments below.
Sorry to be the bearer of bad news.
And remember, you can find answers to all kinds of questions about interest and penalties and other tax issues, free. Where? Where else? At TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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