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What Are the Consequences of Past-Due Tax Returns?

What Are the Consequences of Past-Due Tax Returns?

If you haven't filed a tax return for several years, you should probably file your past-due tax returns as soon as possible. There are consequences for not filing taxes.


What are the consequences of not filing taxes?

The consequences for failing to file a tax return (also known as late filing penalty or failure to file penalty) are generally equal to 5% of the tax due for each month or part of the month in which the return is late. The maximum failure to file is 25%. If your return is delayed by more than 60 days, the minimum penalty for not filing a return is $435 or tax payable, whichever is less.

The good news is that you shouldn't pay the fine if you have a reasonable explanation for the late filing. You can affix a statement to your return explaining the reason for the late filing.

The late filing penalty is not the same as the failure to file a penalty. The late filing penalty affects those who fail to file Form 1040 and other important tax documents on time.

Late payment penalties affect people who pay their taxes late. This is 0.5% of unpaid taxes for each month in which you pay no unpaid taxes. Add interest to that.


The failure to file a penalty generally does not apply if you are owed a refund.

If the Internal Revenue owes you money and you haven't filed a tax return to claim it, do it now! You usually only have three years to request a refund. In general, there is no consequence for not filing a tax return if you receive a refund.


There are no time limits for collecting taxes.

If you haven't filed your old tax returns, you might be tempted to believe that the IRS or the state revenue agency has forgotten about you. However, you can still have problems 10 or 20 years later.

Typically, there is a 10-year period to collect taxes, penalties, and interest for each year not filed. However, if you don't file taxes, collection deadlines don't start running until the IRS does the tax assessment.

State tax agencies have their own rules, and many have more time to collect. For example, California can collect state taxes for up to 20 years from the date of assessment.


How to avoid the penalty for failure to file

If you're about to miss your tax filing deadline, avoid the tax non-compliance penalty by getting an extension to file your tax return. A tax extension can give you an additional six months to file your tax return with the IRS.

However, please note that a tax extension only gives you more time to file your tax return. It doesn't give you time to pay taxes anymore. (Some people, such as victims of natural disasters, members of the military, or Americans living overseas, may automatically have more time to apply.)

However, if you miss the tax extension deadline, the failure-to-file penalty may haunt you again.


Determine if the IRS has filed a Substitute Return on your behalf

Just because you didn't file your return doesn't mean the IRS won't do it for you. The Internal Revenue can file a substitute return on your behalf. Don't think of it as an additional tax filing service. The substituted return may exclude any exemptions or deductions due to it.

Once the substitute return is filed, you will receive a notification of acceptance of the tax liability as set out in the alternative return. If you don't respond, the IRS will issue a notice of absence. At this stage, you feel the need to pay the tax, and the IRS can begin the collection process. It can place a lien on your salary or your bank accounts to encourage payment. Federal tax law may also be imposed on home and real estate.

If an SFR was filed, you do not need to accept this. You can refile those years and include any available deductions. You can lower your taxes and reduce interest and penalties.


Want to find out how long you can go without a tax return?

It is a risky proposition. Although the government usually only has six years to charge you with tax evasion, it has a lifetime to collect the taxes you owe and assess the penalties. In addition to the failure to file penalty, the following things can happen to you when the IRS catches up with you:

  • A substitute return: If you do not file the return, but the IRS has certain information needed to calculate taxes, such as a W-2 form, you may be notified by mail that they have filed a return in your name. The IRS will not consider any tax credits, deductions, or other tax deductions you would have received if you had paid your taxes.

  • Failure to file penalty: If you don't file the taxes owed by the due date, the IRS may penalize you 0.5% of your outstanding balance each month, up to a total of 25%.

  • Interest: In addition to the failure to file penalty, interest is accrued on unpaid taxes.

  • Lost Refunds: You could lose money owed to you. In most cases, the IRS offers a three-year window to file previous year returns. Once this window is closed, you will lose your tax refund.


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