Don’t Let Your Tax Bill Snowball: Why Not Filing is a Bad Idea

Pay your income taxes on time!!  With the 2023 income tax return filing season deadline of April 18, 2023, just days away, many taxpayers fear having their federal (and state) income tax return prepared. Unfortunately, these folks may owe the IRS money and not have the means to pay their tax obligation. This is particularly true for folks who did not file a tax return last year or have not filed in prior years. Unfortunately, failing to file a tax return is a serious problem that can plague you until it is resolved.

Whether you owe money to the state or the federal government or are expecting a tax refund, there are consequences for failing to file a tax return.

Here are the top seven reasons why not filing a tax return is a bad idea.

1.   You could be liable for penalties.

• Late filing penalties – If you file more than 60 days after the due date of the return, the penalty can be up to a maximum of 25 percent of the unpaid tax.
• Late payment penalties – Filing an extension to file your return does not extend the due date for paying taxes. Late payment penalties accrue at a rate of 0.5 percent of the unpaid taxes per month, up to a maximum of 25 percent of the unpaid tax.
• Fraudulent failure to file penalties – If the failure to file your return is determined to be fraudulent, the penalties for late filing of that return can be increased. The penalty can be up to a maximum of 75 percent of the unpaid tax.

2.   Legal consequences:

• Failing to file a tax return can be classified as a federal crime punishable as a misdemeanor or a felony.
• Willful failure to file a tax return is a misdemeanor. However, in cases where an overt act of evasion occurred, willful failure to file may be elevated to a felony.
• If you are charged with a criminal tax violation, the punishment can be severe, including fines and jail time.

3.   The statute of limitations on assessment and collection does not begin until a return is filed:

• Generally, the IRS has three years from the original due date of the tax return to audit that tax return and propose an assessment.
• Once assessed, the IRS typically has ten years from the date of that assessment to collect on an outstanding tax bill. However, these periods can be extended under certain circumstances. Neither of these periods of limitation starts to run until a return is filed by you or on your behalf by the IRS.
• Consequently, the IRS can assess and collect the tax many years later.

4.   Loss of Refunds:

• If you are entitled to a tax refund, you will lose it if you don’t file a tax return.
• The IRS typically allows taxpayers to claim refunds for up to three years after the original due date of the tax return. After that, the refund is lost forever. You cannot even apply it to another year’s tax liability.
• A refund can only be claimed within a short window of time from the original due date.

5.   The IRS can prepare a tax return for you, an SFR:

• Every year, the IRS receives income information reported to it from third parties using various forms, including Form W-2 and Form 1099. The IRS can use this information to prepare a tax return for you.
• This return is called a Substitute for Return. And you could lose out on exemptions, deductions, and credits to which you might be entitled.

6.    Difficulty Obtaining Loans:

• If you don’t file tax returns, it can be difficult to obtain loans or credit because lenders often require tax returns as part of the application process. Additionally, without a tax return, lenders cannot determine your income or verify your employment history. This makes it challenging to qualify for loans or credit cards.

7.    Difficulty Obtaining Government Benefits:

• If you don’t file tax returns, you may have difficulty obtaining government benefits such as Social Security, Medicare, and Medicaid. These programs often require applicants to provide tax returns to verify their income and eligibility. Proving your income and qualifying for these programs can be difficult without a tax return.

However, if you’re feeling overwhelmed by the prospect of filing your taxes and worried about not having enough money to cover your tax liability, don’t fret! The good news is that there are options available to you. These options can help you resolve your tax issue and get you back on track.

First and foremost, it’s important to remember that filing your taxes, even if you can’t afford to pay them 💵 right away, is always the best course of action. Doing so can avoid additional penalties and interest charges that could make your situation even more difficult.

To help you tackle your tax problems, you should consider speaking with Jeffrey Schneider, EA, CTRS. He is trained to find solutions that take into account your unique financial situation. He can work with you and the IRS to develop a plan for paying off your tax liability over time.

So don’t despair if you’re struggling with taxes – he can help! With the proper support and guidance, he can find a solution that works for you. And put your tax worries behind you. As an experienced Enrolled Agent and Certified Tax Resolution Specialist, Jeffrey can help you avoid the worry and stress of unfiled returns. 😁

Unfiled Tax Returns