Not Filing Your Taxes Can Mean Big Trouble

Most people are very careful about filing their tax returns and filing them on time. Ideally, you'll stay ahead of the game each year, and expect to see a refund after you file. If you don't file for some reason, though, it's important to understand what that can mean for you down the road. On the off chance that you haven't filed in years, it's definitely a good idea to plan for what's coming.

First, if you're thinking about skipping or delaying filing your return because you know you're going to owe, you may want to reconsider. The IRS will look on your situation much more favorably if you file on time, rather than ignoring your obligation. If necessary, you can request a filing extension to let them know you need more time. Depending on how long you go without filing your return, there are a few things that could happen. Keep in mind that no matter your situation, you can avoid these consequences by either making the April 15th filing deadline, or filing for an extension and paying at least 90% of what you owe by the April 15th due date:

Penalties – Failing to pay by the April deadline, without getting an extension, will result in a failure-to-pay penalty. This fee is typically .5% of what you owe in unpaid taxes each month, up to 25%. Failing to file penalties are usually 5% monthly, but can also go up to 25%. So, if you do owe taxes, you can quickly increase what you have to pay each month that you don't file.

Tax Refund Problems – Let's say you just forgot to file, even though you didn't owe for your taxes. Not making the April 15th deadline can mean delays in your refund and, if you wait long enough, you might not get it at all. While it's smart to get your refund as early as possible, if you wait three years before filing your return and you're due money back, the IRS gets to keep it.

Substitute for Return – A substitute for return, or SFR, is typically filed after the IRS fails to receive a response after attempts to contact you about your missing return. This substitute return is filed for you by the IRS, and is based on the information reported from your employer(s) and banking institution. The SFR can create problems for you, as it will not include deductions or dependents you would have claimed. Many times, a substitute return will show that you owe more than you actually do. Once you file your return, the IRS will typically make the necessary adjustments.

Jail Time – The worst case scenario of not filing a return is arrest and possible jail time. You're likely to face criminal prosecution if all other IRS collection efforts have failed, especially if you owe a considerable sum in back taxes. The IRS can garnish your wages, place a lien against you, seize your assets and, if all else fails, press charges for tax evasion.

How to Resolve a Tax Debt

Chances are you're a long ways off from worrying about the slammer. However, if you're receiving IRS notices about a missing tax return or back taxes owed, it's a good idea to handle it as soon as possible. Remember, even if you're not able to pay back the full amount of a debt, the IRS will work with you on payment options. You might want to consult with a licensed tax professional if you are facing a back tax debt, or haven't filed for several years. He or she can offer you a free consultation to discuss the best resolution for your particular issue.

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