There are a number of negative consequences for not doing your taxes when you’re supposed to. Let’s go over what can happen and how to dig out.
Tax day can be stressful for many people but even more so for a person who hasn’t filed their taxes in a few years. The longer you go without filing your taxes, the more stressful your situation will become, so you may as well try to fix it. Especially when you start thinking about the penalty charges that may be accumulating.
What happens if you don’t do your taxes?
Not filing your tax return or paying your taxes on time or at all can lead to serious consequences, including:
- Penalties for late filing: The IRS will issue a Failure to File Penalty of 5% of the unpaid taxes you owe for each month or partial month that your tax return is late, unless you are also issued a Failure to Pay Penalty in the same month. In that case, the Failure to File Penalty may be reduced by the amount of the Failure to Pay Penalty for that month. The penalty will not, however, exceed 25% of the taxes you owe.
- Penalties for late payment: The IRS will issue a Failure to Pay Penalty of 0.5% of the amount of tax owed after the due date and for each month or partial month the tax remains unpaid. The penalty will not, however exceed 25% of the taxes you owe.
- Interest charges: Not paying your taxes on time can lead to penalties and interest charges on the amount owed. Interest may accrue on the unpaid tax owed up until the date of payment in full. The interest rate is based on the federal short-term rate plus 3% and is adjusted quarterly.
- Legal consequences: Continuing to ignore your tax responsibilities can lead to wage garnishments, tax liens and levies, and even imprisonment.
The good news is that the IRS actually does try to help those who come forward on their own and, in many cases, is willing to work something out.
What happens if you are late paying your taxes?
You may be subject to penalties and interest charges if you are late paying taxes that you owe. The penalty amount will depend on how late you are and how much you owe. The IRS can take legal action against you in order to collect late tax payments. These actions may include wage garnishment or seizure of assets.
There is a separate penalty for failure to file your tax return on time. If you think you will owe taxes and not have enough money to pay them, you might consider filing your return on time and working out a payment plan with the IRS. Working with a tax pro can give you peace of mind that your return will be done professionally and with your specific situation in mind. In many cases, returns can be done quickly as well, and filed electroncially to make sure they are filed on time.
What can be done to catch up when you haven’t done your taxes?
One way to catch up with your taxes is to file late tax returns. Here are the general steps:
- Gather your tax documents and file your tax returns. For each of the years you have not filed your taxes, you are going to need your W-2’s and/or 1099’s. If you are unable to locate these documents, you can request them from the IRS using a Form 4506-T. You will need to file a return for each year you missed. Most companies that provide e-filing services have forms for the past two years. If you need to go back further than that, you will have to request the forms from the IRS and submit your returns by mail.
- Pay taxes that you owe. Once you have submitted your tax returns to the IRS and your state, you will want to pay any taxes that you owe along with penalties that have accumulated. You can check out the list of penalties on the IRS website. If you cannot pay your entire balance, you will be charged interest until you can. If you are expecting a refund or ended up not owing any taxes, there is no penalty.
- Work out a payment plan with the IRS. If you are unable to make a payment in full for what is owed, you could be eligible for a payment plan. If you are currently low-income, they may have additional options for you. You can apply for a payment plan on their website or by calling the IRS at (800) 829-1040.
Going through the steps of carefully gathering information and then preparing and filing the correct documents and working out the correct fees can be overwhelming and very time consuming. You don’t have to do this on your own. You can work with a tax pro who will help you file on time.
Do you need a tax professional and how do you find one?
In most cases, simply filing your tax returns and paying your taxes will get you out of tax trouble. However, it might be a good idea to meet with a tax attorney or tax filing professional to make sure you are handling things correctly and to learn about any other options that might be available to you. Rocket Lawyer now offers affordable and convenient help for tax prep, filing, and attorney advice. Get matched with a tax pro, scan and upload your documents, and rest easy knowing you have professional help on your side.
While it may be stressful, it will serve you better in the long run to address your IRS issues now. File your tax returns and pay your back taxes to get in good standing with the IRS and your state tax agency.