Death and taxes are the only guarantees in life. Even Wesley Snipes couldn’t get away with tax evasion.
Whether purposeful or not, unfiled tax returns only cause trouble. Who knows what could happen if you don’t file yours? To learn what could happen, read on.
Those Darn Tax Returns
It’d be hard to find someone who enjoys filing their taxes. No matter how much you may detest doing so, it’s your civic duty. It’s the law.
If you fight the law, it’ll win. Penalties for unfiled returns vary.
The failure-to-file penalty is 5% of your unpaid taxes for each month your tax return is past the deadline. That penalty could increase to 25%. It begins to accrue the day after the tax deadline.
Filing over 60 days late means paying at least 100% of the taxes you owe or $135, whichever amounts to less.
Filing your taxes without paying them results in a failure-to-pay penalty. It’s much less. This penalty’s 0.5% of your unpaid taxes for each month without payment, up to 25%.
Your unpaid taxes accrue interest, too. The interest rate is the federal short-term rate in addition to 3%.
Imagine, for a moment, that you do the unthinkable and don’t file a tax return for a whole decade. In that scenario, you’re not off the hook. The IRS can use any of your income to file a return on your behalf.
Almost any non-cash income is reported to the IRS. That includes a 1099 from your brokerage or bank, pay stubs from a job, and earnings from selling on eBay or Amazon. Income from a side hustle or gig counts too.
What Happens If You Don’t File Tax Returns
If you don’t file a return, the IRS can use the information from your reported income to make a tax return for you. The return’s called an Automated Substitute for Return (ASFR).
The ASFR program recognizes your income but ignores any deductions available. If you get an ASFR, contact the IRS immediately.
After some time, the IRS will begin collection proceedings if it doesn’t hear from you. That means garnishing your wages or freezing your bank account.
Unfortunately for you, the IRS has no deadline for chasing down non-filers. Assessing and collecting the tax has no statute of limitations.
Even after filing a return, the IRS has three years to undergo an audit and request more tax. Similarly, taxpayers have three years to claim their refunds. Many taxpayers may not even know that they’re eligible for tax credits.
Don’t be caught with Unfiled Tax Returns.
Tax Man Comin’
Taxes and the IRS have a special place in Americans’ hearts. Although we may not love the IRS, upstanding citizens across the country pay their taxes annually out of a sense of patriotic duty. The fear of the penalties of not paying is a strong motivator, too.
Tax returns are a yearly tradition unlike any other. Skipping them has consequences. To guard yourself against the consequences of other bad financial decisions, go to the Recommendations section.