Filing tax returns is a legal obligation for anyone and everyone earning an income above a certain amount in the United States.
But life can sometimes throw you curveballs, and filing taxes ends up being on the bottom of your to do list. Out of sight, out of mind, right?
Unfortunately, the IRS does not turn a cheek, and the potential ramifications for not filing your taxes can result in major consequences like penalties, interest charges, and even potential legal problems.
For anyone with unfiled tax returns, pay close attention to all of the steps listed in this article.
Understanding Unfiled Tax Returns
Unfiled tax returns refer to the tax forms that individuals are required to submit to the IRS but have not filed for one or more tax years.
Regardless of the reason, it’s important to not let too much time lapse. It’s always best to address your unfiled tax returns as soon as possible to avoid escalating any potential penalties and legal consequences.
Potential Consequences of Non-Filing
The IRS may impose some significant penalties and consequences for not filing your tax returns. Here are some of the more common penalties that they issue:
- Failure-to-File Penalty: This penalty accrues at a rate of 5% of the unpaid taxes per month, up to a maximum of 25% of the unpaid tax amount. It will apply to the net amount that is due after accounting for any payments and credits.
- Failure-to-Pay Penalty: If taxes are owed but not paid by the filing deadline, a failure-to-pay penalty gets applied. This penalty accrues at 0.5% of the unpaid tax amount per month, also capped at 25%.
- Interest Charges: In addition to penalties, interest accrues on the unpaid tax balance. The interest rate is determined quarterly and compounded daily, reflecting the cost of borrowing as set by the IRS.
- Legal Action: Continuously complying with filing requirements may result in legal action, including IRS collection efforts, levies on wages and bank accounts. In addition, you could also be facing a $10,000 fine, and a year in prison, for every unfiled income tax return, as it’s considered a misdemeanor in the U.S. for not filing a legally due tax return.
- Substitute For Return (SFR): When taxpayers don’t file their tax return voluntarily, the IRS may file a return on their behalf. As you can imagine, the IRS is not looking to maximize the deductions and credits of the taxpayers in these cases. The result is often a tax return that shows an amount due by the taxpayer in excess of what they would owe if filed on their own.
Steps to Take for Filing Overdue Tax Returns
While this information may seem alarming or overwhelming, don’t allow it to paralyze you from moving forward. It is crucial to take action.
You want to take care of your unfiled tax returns as soon as possible because the amount you will owe will just continue to grow.
Start taking action with these steps:
Step 1: Gather Necessary Information
- Income Documents: Collect all W-2s, 1099s, and any other income statements for each tax year.
- Expense Records: Gather any and all receipts and documentation for deductions, credits, and expenses claimed.
- Previous Tax Returns: Obtain copies of previously filed tax returns, if available.
Step 2: Prepare and Submit Delinquent Tax Returns
- Download Forms: Access the necessary IRS forms for each tax year requiring filing.
- Complete Forms: Fill out the appropriate tax forms accurately, reflecting income, deductions, and credits for each year.
- Submit Returns: Mail completed tax returns to the IRS for each applicable tax year. Consider sending them via certified mail to track delivery.
Step 3: Address Tax Payment Options
- Payment Plans: If taxes are owed but cannot be paid in full, consider applying for a payment plan (installment agreement) with the IRS.
- Offers in Compromise: In cases of significant financial hardship, explore the option of settling tax debts for less than the full amount owed through an Offer in Compromise.
- Penalty Abatement: Request abatement of penalties if reasonable cause can be demonstrated for the failure to file or pay taxes.
How Tax Relief Professionals Can Help
Don’t think that this has to be done all on one’s own! Tax relief professionals such as our firm at Jablonsky Tax Relief are a tremendous resource and may even help reduce the total amount owed.
Experienced tax relief professionals expertise goes a long way. Here are just a few of the things that tax relief professionals can assist with:
- Compliance Guidance: Ensure accurate completion and timely submission of delinquent tax returns.
- Negotiation Skills: Negotiate with the IRS on behalf of the taxpayer to secure favorable payment terms or settlement agreements.
- Penalty Relief: Advocate for penalty abatement based on reasonable cause or first-time abatement criteria.
- Financial Analysis: Conduct a financial analysis to determine the most suitable tax resolution strategy, such as installment agreements or Offers in Compromise.
Addressing unfiled tax returns is vital for anyone seeking to regain compliance with IRS requirements.
Luckily, resources are available to you. Tax relief professionals play a crucial role in facilitating compliance, minimizing penalties, and securing favorable tax resolutions.
If you find yourself owing the IRS and want to get your life back, contact us today at (972) 821-1991 to discuss your options.
