Unfiled Tax Returns: What Are the Consequences?
Photo from Unsplash
Originally Posted On: https://advancedtaxteam.com/unfiled-tax-returns-what-are-the-consequences/
Unfiled Tax Returns: What Are the Consequences?
What happens to unfiled tax returns? How can tax experts help you with unfiled returns? Let’s discuss the consequences of not filing your taxes and more here.
Keyword(s): unfiled tax returns
Nobody likes to file taxes, but everybody has to do them. However, some people get lazy, and others think that they can pull a fast one on the IRS.
Unfiled tax returns are a bigger problem in the United States than you may think. In 2020, there were $114 billion owed in back taxes across the country.
If you do not file your tax returns, you could face penalties for letting it get to that point.
What are those penalties? Is it worth taking? Do you go to jail?
This is your guide.
If you need to know about unfiled tax returns, you should start with the penalties that go along with it. Well, the main penalty that you need to be aware of is the failure-to-file penalty.
What is this? It is a financial penalty that the IRS gives you for failing to file your tax returns. The exact amount depends on how much you make.
Generally, you will be penalized 5% of the taxes that you owe for every month that your return is late. This will increase by 5% every month for a maximum penalty of 25% of your back taxes.
Something else to keep in mind is how late you are with your payment. Besides the above, you have to watch out if you are more than 60 days late too.
Why is that? The answer is that once you are more than 60 days late, you have to have a penalty of $435. If you do not have that much owed in taxes, then you are penalized 100% of the tax return.
You need to keep in mind that interest also is applied to these penalties. With that said, it is best that you avoid facing these penalties in the first place.
Another thing you have to consider here is tax refunds. You could stumble into a tax refund by simply filing your taxes.
However, if you forget to file or purposefully avoid it, you lose the right to get any sort of tax return. This is because the IRS needs to be aware of what you are making before any refunds could be issued.
So, in some scenarios, you are costing yourself found money by failing to file a tax return.
Along with not being able to get tax refunds, you would not be able to claim tax credits either if you fail to file a tax return. Some people choose not to file one because they do not make a lot of money.
Well, there are tax credits that help people who make lower than a certain threshold of income. The same goes for single parents who may not have enough extra money because they have to support their child. There are child tax credits out there that do exist and are designed to help people in that situation.
So, if you fail to file a tax return, you are missing out on that potential credit and any other credit that you may be eligible for.
Normally, if your business has a year that sees more money spent than earned, they are allowed to carry those losses onto the next year. However, the catch is that you still have to file a tax return.
If you fail to do that, then you are no longer eligible to carry your losses to the next fiscal year. This can be a grave error for certain businesses because if they do well the next year, they can owe tens of thousands of dollars more in taxes. Perhaps even more if they do well enough.
What this means is that carrying losses gives your business even more legroom to recover financially. Take advantage of that.
Statute of Limitations
This part comes into play when the IRS is considering auditing you. How does it do that? The answer is that when you file tax returns, the IRS has three years to make a decision on whether or not to audit that year’s taxes.
So, you must be thinking, what if there is no file for that year’s taxes? The answer to that is it makes the three-year limit null and void. Essentially, by not filing a tax return for a fiscal year, you are giving the IRS an unlimited amount of time to audit you for that fiscal year.
Sure, the odds of you getting audited are probably quite low. Still, you are giving them the wiggle room to do it.
Possible Jail Time
So, are you likely to go to jail for failing to file a tax return? By itself, not very likely. You would have to have other charges filed against you for that to be enforced.
However, if you were to go to jail, you could go for up to one year and face fines of $25,000. That is something that you would definitely want to avoid and it could be worse depending on the circumstances.
For example, if you were caught committing fraud or purposefully evading taxes while you did this, you could go to jail for much longer.
Settle Your Unfiled Tax Returns
These are some of the penalties that you should be aware of when it comes to unfiled tax returns. You have to be aware of the financial penalties that go along with it plus the possible jail time in extreme circumstances.
However, if you file your taxes as normal, you should be fine.
Do you need help with that? Message us today with your questions.