The federal tax deadline has come and gone. What if you haven’t filed your taxes?
Well, you wouldn’t be alone. The IRS reports more than seven million Americans do not file their taxes each year. But just because you might have lots of company doesn’t mean it’s the right thing to do – and there are consequences.
Initially, the IRS will send you a friendly written reminder. However, if you ignore them, they will send you a final bill, called a Substitute For Return or SFR. The government has the right to determine what your income tax would be based on information it receives from your employer, banks, other sources, and previous tax return history. This could be a real disadvantage as the information it uses may not be 100 percent taxable and you will lose out on many deductions that you are likely entitled to.
There is a penalty for late filing of 5 percent of the tax that is unpaid by the due date of each month that the return is late. This penalty can quickly increase the longer you delay, although it is generally capped at 25 percent. Interest and other penalties can be charged if you continue to delay filing your return.
If you continue to ignore the IRS, the agency could place a levy on your bank account, put a lien on your home or seize your car, boat or other personal or real property to pay for your tax liability. The IRS can also order you to prison for income tax evasion, especially if you have several years of returns that you have not filed.
However, it doesn’t have to come to that. First, correct the situation by filing your tax return as quickly as possible. You must file a tax return even if you can’t pay what you owe. Now that the deadline has elapsed, you cannot get an extension if you didn’t already request one, so the sooner you send in your return, the better. (Note that if you didn’t have enough income to file a return, these penalties will generally not apply to you.)
If you cannot afford to pay your tax bill in one payment, the IRS offers installment plans. Generally, if you owe $10,000 or less, the agency allows 36 months to complete payment or if more than $10,000 but less than $25,000 is owed, about 60 months can be used to pay off the tax bill. Depending on your situation, you may be able to take out a loan to pay off your tax obligation.
You get to choose how much the payment will be every month, what day it will be due, and can even set up a direct debit program with the IRS so you don’t even have to remember to send in a paper check.
Certainly if you incur an unpaid tax bill and take no action on it, the situation will become much worse. The tax bill will grow as it gathers penalties and fees over time.
It can be overwhelming dealing with the IRS – especially if you have an unpaid tax bill. A tax professional can assist you in working out a plan to file and repay your tax debt.