Interest and Penalties

• If you file your tax return more than 60 days after it is due, the IRS can assess a penalty of 5 percent per month for up to 25 percent of your total amount due. If you filed late because of fraud, you can be charged up to 75 percent in penalties and late fees. You can also be charged penalties and late fees if you underpay your taxes or do not pay them on time.
  
  

Home Equity Loan Solution

• While you cannot deduct interest and late fees paid to the IRS, you can deduct interest payments on your home loan. If you own your own home, you may be able to take out a home equity loan with your mortgage lender and use the money to pay off the IRS. This will allow you to take deductions on your interest payments, while avoiding additional penalties and fees the IRS charges each day you are late paying your taxes.
  
  

Tax Payments That Are Deductable

• While you cannot take a deduction for penalties and interest on your federal taxes, you can take deductions on other types of taxes and fees. You can take an expense deduction on your state, local and foreign tax payments you made over the past year. To take these deductions, you must itemize your deductions on the IRS 1040 long form.
  
  

Tax Deduction Basics

• When you file your taxes, you have a choice between taking a standard deduction or itemizing your deductions. If you take the standard deduction, you cannot also write off tax and other expenses, even if they qualify. The deductions you take reduce your taxable income, which is the amount of your income that is used to determine the tax you owe.