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It’s easy to put off filing your taxes. Life is jam-packed with places to be and things to do, and finding time to organize your tax information and complete your tax return may not be high on your list of priorities.
But if you wait too long to file and miss the April deadline, you might find yourself contemplating skipping filing altogether. After all, we’ve all heard about that one person who doesn’t file their taxes — ever. Some people go years without reporting income or filing a tax return, and they seem to get away with it. If they can do it, why can’t you?
In reality, filing late is better than never filing at all, even if it’s past the tax deadline. Here’s a closer look at why you shouldn’t simply choose to opt out of filing your taxes.
What happens if you don’t file a tax return with the IRS?
It’s important to file your income tax return with the Internal Revenue Service (IRS) by the Tax Day deadline to avoid potential tax penalties. Failure to file on time may result in having to pay additional money to the government. Even if you can’t pay the full amount at once, it’s recommended to file your taxes on time and pay what you can to prevent further complications. For instance, if you don’t pay your tax bill, the government can issue a legal claim against your property called a tax lien.
You can also file a tax extension which allows you some extra time to figure out your taxes; however, it’s important to note that an extension will not give you extra time to pay your tax bill.
Here are five reasons why you should file your taxes this year:
1. It is harder than ever to get away without paying taxes.
The IRS may be large and sometimes overwhelming, but the agency has one thing on its side: information. An incredible amount of taxpayer information gets sent to IRS computers every year, and there’s a good chance some of that information concerns you.
For example, each year, your employer sends a copy of your Form W-2 to the IRS. The agency then waits, expecting a tax return from you based on the wages reported on your W-2 form. In addition, banks, investment companies, and businesses send 1099 forms to the IRS to report various types of income you receive throughout the year. If you sell real estate, the IRS receives a form showing how much you received from the sale.
It may take the IRS some time to match your income up with your tax return, but eventually, they will find out, meaning you will owe back taxes.
2. Falling behind on your taxes creates unnecessary stress.
Getting behind on any bill is stressful. Falling behind on filing your tax return(s) and paying your tax bill(s) can feel even worse. Fortunately, accruing tax debt is a stress you can avoid.
With TaxAct®, you can file your tax return before its due date and feel confident that our tax software will help you claim all the tax deductions and benefits that apply to you. If you find out later that you may have missed something, you can always amend your return. However, it is better to file your return before the deadline to avoid paying any penalties or interest that may come with filing late and having unpaid tax.
3. The longer you wait to file taxes, the more serious the consequences.
Once the IRS determines you should have filed a federal income tax return and didn’t, you’ll start hearing from them. You’ll likely receive a notification letter from the IRS stating you will be penalized for not filing a return.
The IRS may also create a return for you. For example, if your employer reported your wages to the IRS, the agency may create a tax return showing those wages to determine your tax liability. The catch? The IRS doesn’t know about any deductions or other tax benefits you may deserve to claim. They typically only know about your income, and unless you straighten things out, you could end up paying a lot more in taxes than you should.
If the IRS doesn’t hear from you once you’ve been contacted, things can get more serious. Your bank may send you a notice indicating your money has been seized by the IRS. The agency may also put a lien against your property or garnish your wages. And, during all this time, interest and penalties are piling up, meaning the IRS can take even more of your money.
4. Don’t owe taxes this year? You might be owed a refund.
The IRS has set well-defined guidelines that specify who is required to file a tax return. If your income during the tax year is equal to or exceeds the minimum income requirement, you must file your tax return, even if you don’t expect to owe any taxes or receive a tax refund. You have a period of three years from your filing deadline to claim your tax refund and get that money back.
But thanks to certain tax credits, such as the Earned Income Tax Credit, you may be entitled to a refund even if you aren’t required to file. In order to receive your tax refund, you must file a return. Filing a return promptly will ensure that you receive your refund in a timely manner.
5. It’s better to file now, even if you can’t pay, to avoid a failure-to-file penalty.
Some people avoid filing taxes because they can’t afford to pay their tax bill. However, you should always file on time, even if you can’t pay all the taxes due. If you wait to file, you’ll be faced with a late failure-to-file penalty, which is just one more thing you’ll have to pay. The failure-to-pay penalty is 7% interest rate per month based on the amount of tax you owe.
If you are unable to pay your tax bill quickly, the IRS offers payment installment plans. Depending on your situation, you can request a short-term or long-term payment plan. You may be able to apply online if you filed all required returns and you owe $50,000 or less, can prove you cannot pay the total amount you owe at the time it’s due, and are able to pay off the tax in three years or less. In addition, you or your spouse can’t have had an installment agreement with the IRS in the past five years. You may still owe a late payment penalty, though, and the IRS does charge a fee for setting up installment agreements.
In some circumstances, you may be able to request an offer in compromise with the IRS. This allows you to settle your tax debt for less than the full amount.
The bottom line
If you’re someone who tends to procrastinate, you may find it difficult to motivate yourself to file your taxes. While filing your taxes may not be your favorite activity, it’s best to get it over with and file on time to avoid potential penalties and the possibility of owing even more or leaving a tax refund on the table. Start your return with TaxAct® today — our tax preparation software will save your information, so you can fill out the tax forms you have now and finish filing whenever you’re ready.
This article is for informational purposes only and not legal or financial advice.
All TaxAct offers, products and services are subject to applicable terms and conditions.
The post What Happens If You Don’t File Taxes? appeared first on TaxAct Blog.
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