Some people say they work best under pressure and choose to procrastinate on important tasks like filing taxes. Then there are those who simply forget to file by the April 15th deadline – or deliberately avoid doing so.
Everyone makes mistakes, especially when under the stress of gathering documentation, crunching number and lowering tax liabilities as much as legally possible. However, avoiding your annual tax return obligations can result in costly consequences that extend beyond your bank account.
1) Late Penalties
Considering the importance of filing your tax return, it’s fair to expect some degree of penalty of failing to file your taxes.
- If you are expecting an income tax refund, chances are you won’t get the same level of scolding for the IRS that others who owe money can expect to receive.
- However, if you fall among the people who owe the government money, it’s time to shake a leg & get your tax return in as soon as possible.
The penalty for filing late takes effect immediately following the April 15th deadline and will typically equal 5 percent of the unpaid taxes you owe for every month you delay filing your return, up to 25 percent cap.
- A less hefty penalty of 0.5 to 1 percent of your unpaid taxes per month applies to taxpayers who file by the deadline, but owe taxes and don’t pay up. Even if you can’t afford your taxes now, it’s best to at the very least file your tax return on time.
Those who both file late and fail to pay for the taxes they owe are charged a maximum penalty of 5 percent of their unpaid taxes for every month the bill is late.
2) Delayed reimbursement
Those who wait beyond the eleventh hour to file taxes and claim their refunds may not only get dinged with a late-filing penalty, but holding up refunds does an equal disservice.
3) Forfeiture of Tax Refund
When you’re owed a reimbursement from the government, it’s in no rush to pay you back. In fact, Uncle Sam will give you three long years after the tax year for which you filed to claim your back tax refund.
4) Substitute of Return
Individuals who fail to submit their tax return by the deadline (or extension deadline, if applicable) aren’t in the clear yet.
- The IRS will attempt to contact delinquent tax filers repeatedly & remind them to file their tax returns.
IRS has the right to file a substitute for return on behalf of the filer. The substitute for return isn’t necessarily conducted in the filer’s best interest.
- This course of action does not take into account tax credits and deductions, which means you may be overpaying on your taxes in the end. You can still file your tax return to claim your deductions and expenses. The IRS usually will make the appropriate corrections.
5) Arrest
After sending multiple correspondences regarding an unpaid tax bill, the IRS will send a representative to your home or business to collect payment – typically if you owe $25,000.00 or more.
- Continuing to avoid this responsibility can result in automatic wage garnishments, asset seizures like your car & may be even lead to arrest for tax evasion.
At the end of the day, you’re better off filing your tax return late than never filing it – or paying your taxes – at all