1-800-548-4639Spontaneous travel, dates or parties keep life interesting. A surprise letter from the Internal Revenue Service (IRS), however, is not as fun to find. But it’s what you’ll get if you wait too long to report your income and settle your balance.
Learning about the possible outcomes can inspire you to file your back taxes or get a head start on next year. BC Tax is here to support you through any tax process, from reporting income to requesting an extension or negotiating an installment agreement.
5 Penalties for Filing Your Taxes Late
Failure to file your taxes can lead to various penalties and related troubles. It’s best to file your taxes as early as possible and avoid the repercussions of late filing. There is no legal number of years you can go without filing taxes. However, the IRS adheres to a Collection Statute Expiration Date — the period for collection ends after 10 years.
1. Late Penalties
There are two primary penalties for tax delinquency — one for failure to file and another for failure to pay. Each accrues interest. Here is a breakdown of the potential penalties:
- Failure to File: The IRS charges 5% of the total tax owed every month that passes after you miss your filing date. However, the charge maxes out at 25%. A tiered interest rate continues to apply until full repayment.
- Failure to Pay: The IRS charges a 0.5% fee for failure to pay taxes. This fee also maxes out at 25%. The Failure to Pay penalty accrues interest at a tiered rate.
- When Failure to File and Failure to Pay overlap: If both penalties were to apply to your tax balance in the same month, the failure to file penalty would drop by the month’s failure to pay figure. You would owe the full failure to pay penalty and a reduced version of the failure to file penalty.
2. Delayed Refund
If you fail to file taxes on time, the IRS will reciprocate by delivering your refund late. Even if the government owes you money, they can hold onto it until you file your taxes. You can lose that refund after three years from the initial due date.
3. Loss of Social Security Benefits
Yes, the IRS can attack your social security benefits under the Federal Payment Levy Program. This happens after the appropriate notification process. They will seize this and can possibly cause you hardship.
4. Substitute Return
If you fail to file your taxes, the IRS can do it for you by filing a substitute return. They will do this after several attempts to remind you of your obligation. The return will not be in your favor — they may omit your tax deductions and exemptions, thus increasing your tax bill. You can and should file your own return even if the IRS files a substitute return in your name. The IRS will use it to replace the substitute, including the deductions and exemptions.
5. Imprisonment
While it is unlikely, you can go to jail for not filing your taxes. Tax evasion charges could land you in prison for up to five years. This happens when the IRS sees that you’ve willfully failed to file or you file incorrect and fraudulent returns. Erroneous tax evasion charges are rare, so you are safe if you are not doing anything against the law. And if you are, well, you shouldn’t.
Receiving an Extension to File Your Return
If you know you won’t be able to file taxes on time, you can ask for a 6-month extension by filing Form 4868 from the IRS. However, an extension to file does not grant you an extension to pay.
How Do I Know if I Failed to File Taxes?
The IRS will inform you of your failure to file by sending a letter to your home. The letter will detail the amount you owe, a due date and instructions for disputing the claim. There is no need to reply unless the letter expresses so explicitly.
What Should I Do If I Forget to File My Taxes or Pay My Balance?
Start by filing your taxes as soon as you can. If you’re having problems documenting everything and do not know what to include in your statement, then ask for professional help. Just make sure you don’t let time pass you by, or be prepared for the consequences listed below. It is better to file your taxes even if you don’t have sufficient money to pay.
If you receive notice that you owe money to the IRS, pay what you can to lessen the penalties and interest, then set up an installment plan if you cannot repay the full balance immediately. Don’t put yourself in a bad situation and expose yourself to more tax problems.
Resolve Your Tax Situation With BC Tax
Filing your taxes can be a hassle if you don’t put enough time and effort in doing so. It is important to always be ahead of time to double-check any mistakes and to avoid audits. On the other hand, failing to do so can cause you more harm and problems in the long run. Take your tax obligations seriously, because the IRS certainly will.
BC Tax can help you navigate tax season whether you’re on schedule, close to a deadline or under the IRS’s watch for late payment. We offer a comprehensive list of tax services that help you stay in good standing and, when possible, reduce the amount you owe. Please contact us online to discuss your tax filing and repayment options.
Authored by the BC Tax Insights Team, this article reflects the collective expertise and experience of our seasoned tax professionals. The Insights Team at BC Tax comprises specialists with a deep understanding of various tax scenarios and solutions. With a focus on providing informative, accurate, and practical insights, our goal is to guide readers through the complexities of taxation and financial planning. Every piece is crafted with the intent to help individuals and businesses navigate the ever-evolving world of taxes, ensuring clarity and confidence in decision-making.
