Just do it already. Change your view of taxes if you think not filing a tax return is the best option for you. Why you’re asking? What happens if you file your tax return late?
Well, I would like it to be succinct and say, “You don’t want to know,” but you might want to know what happens if you file your tax return late, regardless. Why else would you be here with this question?
I have to be more realistic as this is a question many people ask themselves, but they should be afraid to find out.
The reality is that late filing of your tax return can have serious consequences, and what happens if you file your tax return late depends a lot on whether you owe money to the IRS – or even be required to file (more on that later).
If you owe them money, what happens is that the IRS will send you a notice asking for payment detailing the penalties and interest you owe and explaining what those fees are.
However, if there is no money on your tax return, things get easier.
The IRS has a variety of debt collection options such as wage collection or property confiscation, and in some cases interest rates can be as high as 30%. You will want to avoid all of this by filing your tax return on time (even earlier!).
Returning to the question – what happens if you file your tax return late? Many. Let’s dive in and find out.
What happens if you file your tax return late
What is a tax return?
A tax return is an annual federal financial statement that collects and presents tax payments, tax deductions, loans, and income earned from money earned during the previous calendar year (or tax year).
Tax filing can range from incredibly simple, where the 1040 only contains your income, a standard deduction, and relevant personal information, to extremely complex hiring a tax professional.
This is especially true if you have income from a self-employment or freelance business, make contributions to an IRA, or want to add additional charts to report on more complex passive income investments or tax positions.
Once all the information has been provided and all the required supporting documentation (eg W-2, 1099, timetables, etc.), you can submit your report.
You have various options for filing your tax return. Your decision to apply may be more complex than just choosing which form (s) to use, and may include considerations such as whether to wait before paying, what payment plans are available, and whether and how changing refunds might affect the amount what renewals are available for payment, and what penalties may apply if you do not pay.
The IRS offers a variety of payment options to settle your tax debt, including a spread out payment plan known as Installment Agreement (IA)… Depending on your financial situation, different methods may seem more beneficial, but this is something you should evaluate for yourself.
Do I need to submit a refund?
Despite the intimidation tactics used above (which I can tell, I’m an accountant who knows you don’t want to get hit by Uncle Sam), you might not even need to file your tax return to get started.
Right. The IRS may not require you to file an Individual Tax Return (Form 1040) depending on three specific criteria that you must meet (usually):
- Your age
- Submission status
- Tax
Minors do not need to file a tax return. However, their parents or guardians can, if they are eligible for child tax, which means they must pay taxes on investment income (meaning income from investment accounts for children) or earned income (which they can contribute at the Roth IRA for kids and reap decades of compound income). returns).
If you are 18 years of age or older and your parents or guardians have not declared that you are a dependent, you may need to apply. There are exceptions, which we will discuss in more detail below in the section on gross income requirements by registration status.
For these, you will need to earn more than the applicable standard deduction on corresponding registration status for your situation:
- If you serve as single tax payer or married person filing separately: $ 12,550 (if you’re 65 or older, that’s $ 14,200)
- If you submit together as a married couple: $ 25,100 (you and your spouse are 65+, then that’s $ 27,800. Otherwise, everyone over 65 gets an extra $ 1,350 on top of the standard $ 25,100 deduction)
- Head of family: $ 18,800 ($ 65+ – $ 20,500)
When you earn income above these dollar thresholds listed above when applying for status, you must file a federal tax return (Form 1040). However, this does not preclude the need to submit it if you earn less than these amounts.
As we learned from the 2020 and 2021 incentive checks, the IRS needed to get tax returns for many individuals. This made it very difficult to process payments and made it difficult to get proof of your income. So, you can consider filing a return even if you do not exceed the above limits.
What happens if you don’t file your tax return?
We know when you need to file (mostly) based on the discussion above. Now, if you are still not convinced that filing a tax return is the right step, I really need to bend over and get rid of the fear, because it will be costly and quickly to abandon the tax return.
1. Fines and interest
First things first. You will be punished with fines and interest. If you didn’t expect it right away, you don’t know the federal government. These constraints are usually enough to induce the majority to fight back without a fight.
The reason they’d rather pay $ 50 to $ 100 to file their tax returns using the software (although you can get them for free through the Free File Alliance if you earn below a certain annual threshold) than to face the long arm of Uncle Sam’s fee schedule …
The fines are the worst. They’re no better off from the federal government. For the fact that you did not file a declaration (when it is required for technical reasons), they beat you delay penalty in most cases it is 5% of the tax amount per month.
Ouch! Since the IRS will set a maximum of 25%, you will pay it every month for the five months that you did not apply.
Let’s say you owe $ 10,000 in taxes and have not filed a return confirming your tax liability. This means that you will be charged 5% of that balance every month for five months, or $ 500 per month!
But, if you owe almost nothing and file your return more than 60 days late, the IRS will still give you a minimum fine of $ 135, or 100% of the tax due.
Did I mention that this is just a fine? There is interest also.
Regarding the mechanism of how much they will charge you, the IRS charges 0.5% interest on the tax you owe per month if you are late from the original payment date.
As an example to consider, if you owe $ 1,000 to the IRS but do not apply within a month after the federal filing deadline (usually April 15th or next Monday if it falls on a weekend) it will be $ 5. interest.
Not too scary – for now. If you owe $ 25,000, that’s $ 125! Moreover, it is a month. Not submit a year? $ 125 * 12 = $ 1,500.
But you may be out of luck, only if you pay 0.5% per month, your balance remains unpaid and you cannot file a return. The IRS can double the rate to 1% per month if you fail to pay the due amount ten days after you receive IRS notification of your intention to collect tax.
This amount will continue to grow until you pay or increase the total maximum penalty of 25%.
2. The IRS is filing a replacement return for you
I can’t suggest avoiding this option any more than I already do: DO NOT ALLOW IT. What tax credits and credits you think you are eligible for? Chances are things won’t go the way you like.
IRS will file replace return and will not be able to fully reflect your tax situation, because you did not provide them with the details for its formation.
The replacement return will not include all the details you would like to show about your tax photo, which will cost you money for not claiming applicable deductions, credits, or other tax clauses that improve your bottom line.
3. The IRS will begin the collection process
This one is bad. The IRS will come for you for the money they think you owe them.
They have many ways to extract what you should: withholding of wages, charge money directly from their bank accounts or even by placing federal lien on your property…
Just file a tax return and pay the debt. And even if you can’t pay your debt on tax day, you have options!
In addition, if you need to file an extension, it will give you more time to prepare your tax return (up to 180 days).
You will still have to pay the tax that you think you owe, or you will face fines and penalties for not paying the balance.
What should I do if I cannot pay my tax bill?
People who are able to pay taxes are required to make payments as they become available.
This means that you show people that you are acting in good faith to pay what you owe, and it will also reduce the amount of money you have to pay (this is how paying bills works!).
If you can’t handle it, you still have other options to consider.
Pay what you can
If you can pay the full amount now, you can use electronic funds transfer or even pay by credit or debit card. Of course, don’t forget that you will also have to pay interest if you have a credit card balance.
From a financial point of view, it can get just as ugly. Thus, you will want to be smart about how to deal with paying off one debt to another.
You can pay taxes by submitting a check. You can mail it or bring it to your nearest IRS office.
Subscribe to a tariff plan
If you need more time to pay off your tax arrears, you can file renewal request and then apply for an extension. There are different costs associated with establishing payment by installments.
There is a formula that takes into account your specific circumstances (such as debt, the time it takes to pay off, etc.) and determines the value.
This post was originally published on Your Money Geek.