As the old saying goes, “There are only two certainties in life: death and taxes.” Have you ever wondered what would happen if you filed your tax return late or worse, did not file at all? Well, you are looking for trouble if you do not file your tax return.
There will be a penalty for not filing your return equaling 5% per month up to 25% of the tax due. Then, there is another penalty of .5% per month up to 25% of the tax due for failure to pay the tax. An example is if you owe $1000, it will cost you $250 penalty for not filing, but only a $5 penalty for not paying. That doesn’t include Interest! The lesson that should be learned is that you should file your return even if you can’t pay the tax today.
If you qualify for a refund and wait more than 3 years to file your return, the IRS will take that refund away, because the statute of limitations expires. Don’t expect them to send you a reminder letter! If you owe the government, their 10 statute of limitations to collect does not begin until you file and the tax is assessed.
In addition to the penalties you are charged for not filing your return, you also increase your chances of being audited, and if you do not file an income tax return, the IRS will gather all the transmitted tax documents and create a “substitute return” for you. The return will have only a standard deduction and you may owe much more than if you filed on your own.
The general rule is to file on time (okay to file up to the extension deadline) since the consequences are harsher for not filing than not paying the tax due. However, be proactive to pay any tax due by the deadline, not the extension deadline.
Be aware of the filing deadlines:
- For individuals, file by April 15th or October 15th with the approved extension.
- For C corporations, file by April 15th or September 15th with the approved extension.
- For S corporations, file by March 15th or September 15th with the approved extension.
- For partnerships, file by March 15th or September 15th with the approved extension.
If you’re not filing because you are afraid you can’t pay, file the return and look at collection alternatives that include Installment Plans, Offers In Compromise, and Currently Uncollectible. Filing timely will greatly reduce the penalties you will incur by not filing.
Don’t put yourself in a position of grief, get your returns filed timely, and work with the IRS to resolve your tax debt. If you need help, call me at (972) 821-1991 with any questions and to make an appointment, whether your are close to our Richardson, TX office, or elsewhere in the US.