California Franchise Tax Board Penalties

The California Franchise Tax Board (FTB) is a state agency responsible for administering personal and business income tax laws in California. If you’re a resident or business owner in the state, it’s important to be familiar with the fees and penalties that the FTB may impose.

note card that says tax day written in pink ink sitting on top of tax documents, with coins and a pen place next to it

The FTB imposes penalties for certain tax-related offenses. These penalties are typically much larger than the fees charged for services and are intended to deter taxpayers from engaging in activities that violate tax laws. Some common examples of penalties that the FTB may impose include:

Late filing penalty

If you fail to file your income tax return by the deadline, you may be subject to a late filing penalty. This penalty is generally 5% of the amount due for each month or part of a month that the return is late, up to a maximum of 25%.

Late payment penalty

If you fail to pay your tax bill by the due date, you may be subject to a late payment penalty. This penalty is generally 0.5% of the unpaid tax for each month or part of a month that the tax remains unpaid, up to a maximum of 25%.

Accuracy-related penalties

If the FTB determines that you have made a significant error on your tax return resulting in unpaid taxes, you may be subject to an accuracy-related penalty. This penalty is generally 20% of the underpayment of tax.

However, no penalty will be imposed if the portion of underpayment does not exceed $5,000 for individuals.

Fraud penalties

If the FTB determines that you have intentionally tried to evade paying taxes, you may be subject to a fraud penalty. This penalty is generally 75% of the underpayment of tax.

Avoiding tax penalties

Now that we’ve covered the basics of FTB fees and penalties, let’s talk about how to avoid them. Here are a few tips to keep in mind:

File your tax return on time

This may seem obvious, but it’s important to make sure that you file your tax return by the deadline to avoid late filing penalties even if you don’t owe taxes.

If you’re unable to meet the deadline for any reason, you can request an extension of time to file.

Pay your tax bill on time

Like filing your tax return, it’s important to make sure that you pay your taxes by the due date to avoid late payment penalties. If you’re unable to pay the full amount due, you can request a payment plan or consider other options, such as applying for an offer in compromise.

Double-check your tax return

Before you file your tax return, make sure to review it carefully to ensure that all of the information is accurate. This will help you avoid accuracy-related penalties.

Don’t try to evade taxes

It’s never a good idea to try to evade paying taxes, as the penalties for doing so can be severe. If you’re unsure about how to report your income or claim deductions, it’s a good idea to seek the help of a tax professional.

By following these tips, you can ensure that you’re in compliance with California’s tax laws and avoid any potential issues with the FTB.

woman handling multple tax documents to keep her tax liability from compounding

How can I avoid penalties and interest?

Penalties from any taxing authority are more severe than you may think, and it’s important to know that there are ways to avoid them.

Extension of time to file

If you’re unable to file your tax return by the deadline, you can request an extended due date. This will give you additional time to gather all of the necessary documents and prepare your tax return. It’s important to note, however, that an extension of time to file is not an extension of time to pay.

If you choose to underpay, keep in mind the CA underpayment penalty. You’ll need to pay at least 90% of the amount due by the original deadline to avoid a penalty.

Payment plans

If you’re unable to pay your tax bill in full by the due date, you may be able to set up a payment plan with the FTB. There are several options available, including short-term and long-term plans. To qualify for a payment plan, you’ll need to meet certain requirements and pay a fee.

Once approved, you’ll be able to pay the taxes owed through a series of monthly payments until your debt is fully paid off.

Offers in compromise

If you’re unable to pay your tax bill in full, you may be able to settle your debt for less than the full amount due through an offer in compromise (OIC).

An OIC is a formal agreement between you and the FTB that allows you to pay a reduced amount to resolve your tax debt. To qualify for an OIC, you’ll need to demonstrate that you’re unable to pay your tax debt in full and that paying the full amount would cause you financial hardship.

Voluntary disclosure program

If you have not filed tax returns or have underreported your income in the past, you may be able to avoid penalties by participating in the FTB’s voluntary disclosure program.

Under this program, you can come forward and disclose your tax liability voluntarily, and the FTB may waive certain penalties and reduce interest if you meet certain requirements.

Tax amnesty

From time to time, the FTB may offer a tax amnesty program. During this period, taxpayers who owe penalties may be able to pay a reduced amount and have them waived.

Tax amnesty programs are typically limited in time, so it’s important to take advantage of them if you’re eligible.

Appeals process

If you disagree with a decision made by the FTB, you have the right to appeal. You can file an appeal with the FTB’s Appeals Division, which will review your case and make a determination. If you’re still not satisfied with the outcome, you can also appeal to the Office of Tax Appeals or seek legal recourse in court.