Two things in life are inevitable: death and taxes. We can’t say for certain when death will come. Tax day, however, is usually April 15, unless it falls on a weekend or holiday. This year, the deadline is April 17.
Have you ever wondered what happens if you file your tax return late? Or, even worse, if you don’t file your tax return at all?
If you fail to file your tax return by the due date, including extensions, you may have to pay a failure-to-file penalty. Some people think this is a one-time penalty that doesn’t amount to much. The IRS penalty is usually 5 percent for each month or part of a month that the return is late, but not more than 25 percent of the tax due.
If you file your return more than 60 days after the due date, the minimum penalty is $100 or, if less, 100 percent of the tax on your return.
If you owe taxes but filed your return, a failure-to-pay penalty will be applied. That’s one-half of 1 percent of your unpaid taxes for each month or part of a month after the due date that the tax is not paid. This penalty does not have a cap on it and will continue to be assessed until the tax is paid.
The failure-to-pay penalty rate increases to a full 1 percent per month for any tax that remains unpaid the day after a demand for immediate payment is issued, or 10 days after notice of intent to levy certain assets is issued.
More bad news includes the loss of a refund. If you failed to file your tax return and had a refund coming, that refund is only available for three years from the due date of the original return. After that, the refund goes back into the general fund and you are unable to claim it.
There are some avenues that you may use to try to get your refund, but the process is extensive and requires a petition to the U.S. Tax Court. Even if you file the petition, there’s no guarantee your refund will be returned.
It is best to file your tax returns on time.
Penalties are just one adverse effect of not filing your taxes. There are more severe ramifications of not filing a past-due return.
The IRS may file a substitute return for you. But this return is based only on information the IRS has from other sources. Thus, if the IRS prepares this substitute return, it will not include any additional exemptions or expenses you may be entitled to and may overstate your real tax liability.
Once the tax is assessed, the IRS will start the collection process, which can include placing a levy on wages or bank accounts or filing a federal tax lien against your property.
If you aren’t ready to file your return by April 17, file an extension to safely eliminate the failure-to-file penalty.
However, if you think you will owe, you must pay the tax due with the extension request. Filing an extension does not eliminate the failure-to-pay penalty if you owe taxes.
For more information regarding penalties, visit www.irs.gov and type “penalties” or Publication 534 in the search box.
Tracy Bunner is an enrolled agent and tax preparer with an office in Harrisville. She can be reached at 801-627-2212 or firstname.lastname@example.org.