When You Failed To File On Time: Consequences And Actions

April is tax season in the United States, an annual event that requires all American taxpayers to file their tax returns on the specific date set by the Internal Revenue Service (IRS). But what happens when you fail to file your tax returns in a timely manner?

The Consequences of Failure to File

Keep in mind that the IRS can file charges for tax fraud against taxpayers who failed to file their returns for the year. Tax fraud in itself is a criminal offense so there’s always the possibility of prison time and financial troubles. Think of Wesley Snipes and his downfall in Hollywood when he was imprisoned for tax-related cases and you get the idea.  

But don’t panic immediately because not all taxpayers who didn’t file timely returns will be subjected to a tax fraud investigation. There are other measures that can be done to protect your rights and perform your responsibilities, as will be discussed in the next section.  

There will also be other consequences that deserves as much attention as a tax fraud investigation. First, the IRS can impose penalties on your account. There are two different penalties, namely:

  • A failure-to-file penalty equivalent to 5% of the unpaid taxes per month
  • A failure-to-pay penalty of 0.5% of the unpaid taxes per month

Both types of penalties are capped at 25% of the unpaid taxes. You may be paying up to 50% of your unpaid taxes over time, a preventable expense if you act promptly.  

Second, the IRS can make the tax return on your behalf and it will likely not be in your favor. The agency, after all, can include all your income earned yet exclude credits and deductions you’re entitled to for obvious reasons. You will then end up with a higher tax bill.

Third, the IRS can keep your refund for the year. You will also be ineligible to claim the refund after three years even if you file a tax return for that year.  

The Actions Necessary

Don’t wait for the tax fraud investigation to start! Instead, you should file your tax return immediately – ask the Jackson Hewitt preparers for professional assistance and for prompt filing. When you have filed your annual return, you can look into the IRS payment assistance programs including offers in compromise and installment payments.  

In filing your return beyond the deadline, you are also avoiding the 5% failure-to-file penalty. If you file but you can’t pay, your penalty is capped at 25% for the failure-to-pay penalty instead of the 50% cap on both penalties.  

If you are already several years behind on your returns, then you should ask for expert assistance from an experienced tax advisor. You will need it especially as the IRS isn’t one for excuses.  

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