Are Tax Penalties & Interest Deductible?

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When you don't pay your taxes on time, the Internal Revenue Service and other taxing authorities impose interest on the unpaid amount and tack on extra penalties. Though you can write off the original amount of state and foreign income taxes you pay, you won't receive any tax deductions from the IRS for fees and penalties when you file your federal return.


No Deduction for Tax Penalties

In Publication 17, the IRS expressly forbids you from claiming an income tax deduction for tax penalties and interest you pay. However, if you pay the original amount due in a later year, you can write off the amount you paid. For example, if you pay your 2013 state tax bill, plus interest and penalties, during the 2014 calendar year, you can write off the original amount owed when you file your 2014 federal taxes. You cannot write off the extra interest and fines you pay.

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