Failing to file tax returns on time doesn’t necessarily make you a criminal, but the penalty for procrastinating can be punishing.
What’s the price you’ll pay? The IRS can assess a failure to file penalty, which is usually 5% of your unpaid taxes per month, up to a maximum penalty of 25%. In addition, there is a penalty for failure to pay taxes on time. This penalty accumulates at a slower pace of 0.5% of unpaid taxes per month.
You may also have to pay interest on both taxes due and the penalties. Even if you can’t afford to pay all that you owe, you can help limit the penalties and interest by filing the returns and working with the IRS to schedule payments. Your state may also have a program for helping you catch up on state taxes owed.
Need more incentive to get motivated? Here’s one: If you overpaid your taxes in a prior year and failed to file a return, you only have a three-year window from the original due date of the return to claim your money. And if you have a refund, you don’t need to worry about paying penalties. You won’t owe them.
Here’s another reason to get caught up on back returns – you may need a tax return when you apply for a mortgage, business loan, or federal college aid. Social security, Medicare, and unemployment benefits can also be dependent on tax return data.
Consider this as well: When you fail to file, the IRS may complete a return on your behalf. If that happens, the IRS can calculate your tax liability and send you a bill without regard to deductions and credits you might otherwise be able to claim.
Have a prior year tax return you’ve never filed? The sooner you act, the better. Contact our office for help.