First Time Penalty Abatement
If you meet the eligibility requirements, you may be able to have your first penalty waived.
- If you were not required to file a return before you did not receive a penalty for the previous 3 years, and
- You filed any required returns or filed an extension for all previous years, and
- You paid or set up a payment plan for any tax due. Also, if you have a payment plan, you must be current.
If you do not qualify for the abatement, you will get lower penalties for late payment than for late filing. But dont forget that interest begins to accrue the day after the due date and compounds daily, so it may not be worth it to follow that path.
How Do I Avoid A Tax Penalty
To avoid tax penalties, file tax returns by the due date. If you canât file your tax return by the tax deadline, apply for a tax extension to file the return. Unfortunately, an extension to file the return doesnât extend the time you have to pay your taxes. If you apply for an extension to file a return, pay your estimated tax liability to avoid a failure-to-pay penalty. If you pay at least 90% of your tax bill, you may avoid penalties.
The Longer You Wait The More Serious The Consequences
Once the IRS determines you should have filed a return and didnt, youll start hearing from them. Youll likely receive a notification letter from the IRS stating you will be penalized for not filing a return.
The IRS may also create a return for you. For example, if your employer reported wages, the IRS may create a tax return showing those wages. The catch? The IRS doesnt know about any deductions or other tax benefits you may deserve. They typically only know about your income, and unless you straighten things out, you could end up paying a lot more in taxes than you should.
If the IRS doesnt hear from you once youve been contacted, things can get more serious. Your bank may send you a notice indicating your money has been seized by the IRS. The agency may also put a lien against your property or garnish your wages. And, during all this time, interest and penalties are piling up, meaning the IRS can take more of your money.
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Unclaimed Federal Tax Refunds
If you are eligible for a federal tax refund and dont file a return, then your refund will go unclaimed. Even if you aren’t required to file a return, it might benefit you to file if:
- Federal taxes were withheld from your pay
- You qualify for the Earned Income Tax Credit
You may not have filed a tax return because your wages were below the filing requirement. But you can still file a return within three years of the filing deadline to get your refund.
Tax Return Dos And Donts
- Allocate enough time to do your taxes to reduce the chances of making mistakes that could cost you in the long run
- Keep track of your income throughout the year to make tax season less stressful
- Check to see if you could transfer any credits so you can take advantage of it
- Double check everything
- Dont leave your taxes for the last moment
- Dont get professional help if you can file your taxes yourself using software. Tax programs cost $30 – $50, which is significantly less than professional help.
- Miss your filing deadline
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What Conditions Must Be Met For The Voluntary Disclosures Program
Taxpayers can make an application to the Voluntary Disclosures Program . However, certain conditions must be met to qualify for the program.
To qualify for relief, the application must:
- be voluntary. If the CRA has asked for information or discovers information from a third party, then you no longer qualify for the VDP. If the CRA has sent you a letter in the mail regarding your returns or you at all have information that the CRA may be close to discovering your incorrect information, you are disqualified from entering the program.
- be complete. You must include information related to all years that you believe that taxes are owing. If the CRA discovers additional years where taxes are owing, you will no longer qualify for relief for the years that were disclosed.
- must involve a potential penalty or interest
- include information that is at least one year past due for income tax applications and
- include payment of the estimated tax owing.
It should be noted that the voluntary disclosure program may be utilized by a taxpayer only once in their lifetime .
Find The Tax Forms For The Unfiled Years
Tax rules, deductions, and credits change every year. To ensure youre providing the IRS with the correct information, you need to use the correct tax forms for every year. You can often find the tax forms you need by doing a web search for the tax form and the year.
For example, if you need to file an individual tax return for 2019, search for form 1040 year 2019. These forms should be available for free on the IRSs website. Do not pay to download them from other sites. Alternatively, you can call the IRS at 1-800-TAX-FORM or contact a tax professional to help you.
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What Happens If I Dont Pay Taxes: Consequences & Penalties
The United States government is much more forgiving of people who fail to pay their taxes than those who fail to file. In general, filing shows that you are being honest with the IRS. Failure to file may be seen as an attempt to trick them and could lead to criminal charges.
However, you might fail to file because you do not have the money to pay, which is a mistake. The IRS offers extensions and solutions that will help you in paying your back taxes. This means even if you don’t have any resources at the moment, you must still file a tax return.
The IRS is less likely to enforce penalties on people unless they are tax-evading millionaires, but – NOTE! – not filing can still result in costly fines and a year in prison for each unfiled year. In essence, you’re better off filing a return just to be on the safe side.
Should you not file or pay taxes, here’s what you can expect will happen:
What Are The Consequences Of Failing To File Your Taxes
Unfortunately, those who do not file a tax return on time may be charged with a crime. Penalties can include significant fines and even prison time.
Luckily, the government has a limited amount of time in which it can file a criminal charge against you for tax evasion. If the IRS chooses to pursue charges, this must be done within six years after the date the tax return was due. Additionally, a non-filer who voluntarily files their missing tax return is not likely to be charged.
Anyone can unintentionally fall behind on paying taxes. Suffering a serious illness or a death in the family could result in a person forgetting to pay their taxes on time. Once a non-filer has gone a few years without filing, they may find it tempting to continue neglecting the task. However, if non-filers have not filed taxes in several years, this could leave them exposed to steeper penalties and time in prison.
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How Does The Irs Know If You Haven’t Filed A Tax Return
The IRS uses a number of methods to track down people who haven’t filed their tax returns. In particular, the IRS can find out if someone hasn’t filed their taxes through third-party reporting. This means that financial institutions, employers, and other entities report information to the IRS about taxpayers.
For example, banks will report interest income earned by taxpayers to the IRS. Employers will report wages paid to employees. If you’re self-employed, your clients may send a 1099-NEC to the IRS. Additionally, taxpayers who make estimated tax payments will have those payments reported to the IRS.
If the IRS sees income documents from a taxpayer who hasn’t filed a return, the IRS may assume the person should have filed. Then, the agency may send a notice asking for the return to be filed. If the taxpayer doesn’t respond, the IRS may take further action, including levying fines or filing liens. In some cases, the IRS may even pursue criminal charges.
Not Filing Taxes When Youre Entitled To A Tax Refund
If youre not required to file a tax return, the IRS wont take collections action against you, but you may miss out on credits or refunds. Some credits such as the Earned Income Tax Credit and the Child Tax Credit are available to taxpayers whose incomes are under the filing threshold.
Keep in mind that you only have three years to claim a refund. There is no penalty for filing late if you are due a refund, and the IRS will even add interest to your late refund. But if you dont file within three years of the due date, you lose your chance to claim the refund.
In contrast, if you owe the IRS money, the agency has a decade to collect it. And there is no time limit for the IRS to assess a tax against an unfiled return.
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What If You Dont Owe You Might Have A Refund
The IRS has strict guidelines in place indicating who needs to file a tax return. If your income falls at or above the minimum income requirement, youll need to file even if you think you wont owe anything or receive a refund. You have three years from your filing deadline to file for a refund.
But, theres more. Thanks to certain credits, such as the Earned Income Tax Credit, you may be entitled to a refund even if you arent required to file. In this case, you wont get a refund if you dont submit a return, therefore it may be in your best interest to do so.
You’ll Get A Summons From The Irs
If you somehow forget or neglect to file a tax return, the IRS may eventually come knocking on your door. The IRS will send a summons to the last address that you filed from or the one you requested the documents from. The summons will ask for more information regarding why you haven’t filed and list out any necessary forms or paperwork needed to complete your filing.
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You Paid With Cash Check Or Direct Bank Transfer
Why does the payment method matter?
If you’re paying a service provider with a debit card, credit card, or payment app, they’ll get a 1099-K instead. These are sent through the third-party payment processor you used, like MasterCard or PayPal. You won’t have to file a form at all.
Essentially, paying “directly” from your bank account, or in cash, means you have to issue the 1099. Using a third-party, on the other hand, takes the onus off of you.
What You Should Not Do
Many people bury their heads in the sand when it comes to their tax returns. If you have any old or unfiled taxes, you may think that the IRS has forgotten about you. But you still may be on their books many years later.
While there is a 10-year time limit on collecting taxes, penalties, and interest for each year you do not file, the period of limitation does not begin until the IRS makes what is known as a Deficiency Assessment.
Additionally, you have to consider the state you live in. For example, if you live in California, they have a legal right to collect state taxes up to 20 years after the date of the assessment!
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File Even If You Can’t Pay Experts Say
Even if you can’t pay your taxes, it’s still important to file, Smith says: “You need to either file by April 15, or file an extension by April 15.”
If you don’t file, the consequences can pile up, thanks to fees and interest. Plus, you may miss out on a refund.
Say you owe $10,000 in taxes, don’t file for an extension and pay on Oct.15, says Smith: “By not filing for an extension, you have a 5% per month penalty for failure to file and a 0.5% failure-to-pay penalty for October . Had you filed an extension request, the penalty would have been six months at 0.5%, or $300.”
If you haven’t done so already, finish up your return or at least file an extension by April 15, says Smith: “Most of you are probably entitled to a refund, so don’t let the government hold your money for free.”
How Do I Know If I Need To File A Tax Return
There is a minimum amount of income that you need to earn before you are required to file a federal tax return. The minimum income amount depends on your filing status, age, and other factors. Below are some examples of the minimum income levels that need to be met for the 2020 tax year before a person is required to file a tax return:
Single filer under age 65 – $12,400
Single filer, age 65 or older – $14,050
If youâre not sure where you fit, you can use this handy tool from the IRS to find out whether you need to file a tax return.
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What Happens If I Dont File My Taxes
- Kemberley Washington – Forbes Advisor
Though some low-income Americans are technically not required to file a tax return, the IRS generally expects you to submit a return if you meet certain earnings thresholds.
And if youre supposed to file taxes but dont, the consequences can be costly. The IRS may charge you penalties and interest for each month you go without filing and dont pay taxes due. Additionally, if you dont file a return within three years of the due date, you may forfeit any refund youre owed.
If you havent filed your most recent tax return, this is what you need to know.
Asking For A Second Extension
If 30 days isn’t enough for you, you might be able to request a second extension. You’ll need to send in a second Form 8809, before your first extension is over.
Unfortunately, this second extension isn’t automatic. It’s specifically first-year businesses and businesses affected by special circumstances, like:
- A federally recognized disaster
- A fire, natural disaster, or other casualty
- The death or illness of the person responsible for filing the 1099s
If youâre able to do so, getting your 1099s in on time is generally less hassle than asking for an extension. But even if you miss the deadline, you can stop things from snowballing by acting quickly.
Robby Nelson, CPA
When not hanging out with his high profile friends like Gandhi or Batman, Robby enjoys spending time with his wife and children. He can sneeze with his eyes open, has won two lifetime achievement awards, and has visited every country three of which haven’t been discovered yet. He is also a Certified Public Accountant and assists clients with a wide variety of accounting and tax issues.
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Here’s What Really Happens If You Don’t File Your Taxes
Everyone at some point in their tax-paying lives has been tempted to skip the whole ordeal, or delay the chore to the point that you owe Uncle Sam five years worth of tax returns. What would happen if I didnt file my taxes this year? Is the IRS really going to come after me?Well, after doing some digging, we’ve concluded you’d be better off filling out your tax return in crayon than sitting on your hands and letting the IRS have at you no matter how daunting the task might be. Every once in a while Ill have a client with a health issue or something , says Paul Bogdanoff, a certified public accountant with Bogdanoff Henderson PC in Indianapolis. Theyre just overwhelmed with life and they just havent gotten to it because its too much for them to deal with.
There are countless scenarios in which a person might fail to file or pay their taxes. We outlined a few common examples of what you can expect if you wind up falling short this tax season: What if
…It’s April 16 and you still havent filed your taxes:
What to do: If there are mitigating factors that make it impossible for you to file on time, you can apply for an extension with the IRS. That will buy you six months to file your return. Its important to respond before the IRS , Bogdanoff says. If youre proactive, thats much more beneficial than if youre doing it because youve gotten a call or somebody from the IRS has knocked on your door. …Woot! Youve been approved for a tax-filing extension:
Negotiate The Tax Bill
You are still in the position to negotiate. The IRS would prefer you to negotiate and pay as much as possible rather than going to jail. But even after you pay, the IRS has 3 years to charge you with a criminal offense. Here are some options you can try:
- Take the funds from the savings but not the retirement accounts.
- Make a partial payment to reduce the size of the bill and the interest.
- Ask for an installment plan with the IRS or payment extension
- Ask for leniency due to hardship by using an Offer in Compromise.
Theres a lot to consider when it comes to filing taxes, but you should never feel like you have no options. If you want extra support, we specialize in relief from tax debt and our tax relief specialists can help you out.
You may have thought you didnt need to file taxes because you didnt make enough money or other extenuating circumstances, or you may have simply forgotten to file your taxes. However, most people earn over a certain amount to file taxes. If it has been a significant amount of time since you filed or paid taxes, you may still be liable for any back taxes. Lets look at what could happen and how you can minimize the worst of the punishments.
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