Most people at some point in their lives have this thought – do I really need to file my tax return this year? It’s such a laborious process – what would happen if I skipped it this year and didn’t file? Would it matter? Would the IRS really care?
Filing a tax return has always been a rather time-consuming business but we are told that it is essential. And for good reason. It turns out that it is important to file a tax return – and the consequences of not filing may surprise you. Here are some tax filing scenarios to avoid this year, and the coming tax years.
What Happens If You File Your Return Late
Many people forget or are disorganized and fail to file in time. There is a deadline for sending your tax return to the IRS – April 15. If you have not sent a return by this date you will be charged a failure-to-file penalty notice. The amount you pay starts at 5 percent of the tax you owe, and is capped at 25 percent of your total tax bill. If you are later than 60 days to file then your penalty fee is $135 or 100 percent of your tax bill – whichever figure is least.
What Happens If You Have Good Reason to File Late
Sometimes there are occasions where it is impossible to be able to file on time. In these cases, you can ask for an extension from the IRS. If this extension is granted then you have until October 15 to file. But remember that you must tell the IRS you missed the deadline and don’t just wait for them to notice. And remember that just because you got an extension to file, you don’t get an extension to actually pay your taxes. You will get charged a penalty if you are late paying – and you will be charged interest on any balance unpaid. So it is really worth being proactive and trying to clear your tax bill as soon as possible.
What Happens If You File and Don’t Pay
The tax bill can be a shock for many people. If you have filed a return on time but you have not paid your tax bill, you don’t need to worry quite so much about the IRS’s reaction. You will have a lower late-payment fee provided you have a payment agreement set up with the IRS. If you have not paid for many years it is worth getting a tax attorney to act on your behalf as an intermediary with the IRS so you can clear your debt in a way that is possible for you.
What Happens If You Do Not File and You Do Not Pay
You are heading into trouble here if you do not file a tax return and you do not pay your taxes. You will get penalty fees for both failure to file and late payment. Plus, you may get hit with one of the following scenarios:
You Pay Interest
As well as the fees for failing to file and failing to pay, you will be charged interest on the amount you owe for as long as you owe it.
You Get IRS Notices
Prepare for some mailings from the IRS. They must send you the first notice once they realize you have not filed or paid any tax. Many people don’t respond to this notice, thinking they will pay when they find the money, but this is a mistake. Even if you cannot pay you to need to contact the IRS as this will help you work out a payment plan.
IRS Takes Action
If you do not contact the IRS when you receive a notice they could hold onto the refund you are owed. They may also seize your Social Security benefits (apart from those that are paid to your children). They can make a claim to your property which will appear on your credit report and make it difficult for you to get a loan or any other form of financial assistance. The IRS could actually take your car or your house, or even your bank account or your income. You may receive a summons to appear in front of an IRS officer. In extreme cases, you may need to declare bankruptcy in order to get on top of your finances.
The best thing you can do if you have not filed your tax return is to contact the IRS and discuss what to do next. Sometimes there are circumstances that mean you are filing late or you are having problems paying a tax bill. The worst thing you can do is continue to ignore the problem.