There are many reasons why people file their taxes late or not at all. Unfortunately, the IRS doesn’t care why you haven’t filed your taxes on time. You may feel overwhelmed and can’t even think about filing your taxes by April 15, but choosing to not file your taxes on time is a recipe for potential disaster and a risk you can’t afford to take. Read on to discover the six biggest risks of filing taxes late.
The 6 Most Significant Risks of Filing Taxes Late
1. You Might Go to Prison
Failing to file your income tax forms is a criminal case. If you’re thinking about filing taxes late, be aware that you can go to jail for a year for every year you are late filing your taxes. Is this really a risk you are willing to take?
2. You Will Have to Pay Penalties
The penalties associated with filing taxes late depend on if you owe the IRS money or not. If you do not owe any money to the IRS, there is no penalty for filing late. However, if you owe taxes, the penalty you face is massive. To penalize you for late filing, the IRS can tack on five percent of your unpaid tax bill every month for up to five months. In other words, if you owe $1,400 and you are late filing your taxes by five months or more, you’re looking at a penalty of $350, or 25% of your past-due tax bill.
But that’s not the worst part. There is a minimum penalty for filing over 60 days late. This penalty equates to the smaller of $210 or 100% of your tax bill. Many people fail to file their taxes because they can’t afford to pay their tax bill. However, the late payment penalty is only half of a percent of the tax due. While this penalty increases every month, it would take 200 months, or 16 years and eight months to equal the penalty for filing taxes late.
3. You Could Forget Your Extension Deadline
Requesting an extension with the IRS is pretty easy. Simply fill out Form 4868 and submit it online or by mail. Extensions are granted automatically to anyone who submits the form. However, this simplicity can lull people into a false sense of security.
You know the IRS is off your back for six months, and you completely forget about filing your taxes by October 15. If December 16 comes and goes and you still haven’t filed your taxes, you will be hit with a $435 late-filing penalty. Even worse, an extension to file is not the same as an extension to pay. If you haven’t paid your balance in full, interest is still accruing on the balance due.
4. You Might Face an Audit
Any number of things can raise red flags and prompt the IRS to launch an audit. There’s normally nothing to worry about when the IRS launches an audit. If you have never actively committed tax evasion or tax fraud, the IRS can extend the scope of the audit back a decade, and you will only have to worry about providing the auditor with the required documentation for the audited years. Just know that if you file your taxes late, the IRS may believe that you need extra time to save money on your taxes by defrauding them.
With the help of a professional tax consultant, you can easily turn this risk into an opportunity. First, ensure your taxes are filed correctly. Second, have an expert look at your financial situation to determine if there are any tax credits you qualify for that you may not have been aware of. With just a few tax documents and questions about your life, an expert may be able to help you save hundreds or thousands of dollars in tax liability.
5. You Could Be Missing Out on Money
Not all risks of filing your taxes late are as bad as going to prison. If you were actually owed a refund but neglected to file your taxes for three years, you forfeit any right to that money. Regardless of how much of a refund you were owed, there is no reason to leave your money on the table. Even worse, there is no reason for the government to hold your money, interest-free for any length of time.
6. If You Owe, You Will Forfeit Future Refunds
The IRS already knows how much you owe them. If you failed to file and pay your taxes last year and you’re “due” for a refund this year, you won’t get it. Any refund the federal government “owes” you will go towards paying off the penalties and interest accrued on not filing and paying in the past.
What If I Can’t Pay?
For the five reasons listed above, an inability to pay is not a valid reason for filing your taxes late. In fact, since all extension requests are automatically granted, there is no valid reason to file your taxes late. However, the fact remains that people all over the country will fail to file their taxes in the hopes of flying under the radar and avoid paying their income taxes. Here’s what you should do instead:
1. Ask for an Extension
If you can’t pay your tax liability by April 15, 2020, start by paying as much as you can afford. The less you owe the IRS, the less you’ll pay in interest and late payment penalties. Once that’s done, ask for an extension to pay. This extension allows you an additional 120 days to pay your tax liability in full.
The primary benefit of an extension to pay is there are no administration or filing fees associated with this type of agreement. The ancillary benefit is you save money on interest and late payment penalties when compared to an installment agreement or other longer repayment arrangement.
2. Ask for an Offer in Compromise
If paying your tax liability in full would cause financial hardship, you can hire a tax professional to request an offer in compromise on your behalf. This arrangement allows you to settle your unpaid taxes for less than the amount you owe.
Most people qualify if they have no or few assets for the IRS to levy, and they struggle to pay their necessary living expenses. However, hiring a professional is crucial because many people are denied when they file on their own behalf.
Contact Geaux Tax Resolution Today
For millions of Americans, meeting the April 15, 2020 deadline feels difficult, if not impossible. But the answer isn’t filing taxes late. For help filing your taxes, even if you haven’t filed in years, contact the certified tax specialists at Geaux Tax Resolution in Lafayette, LA today to schedule a complimentary consultation. We have decades of experience helping people just like you, and some of our tax specialists even worked for the IRS. There’s no need to worry about taxes this tax season. With us, you’re in good hands.