Filing a tax return is a critical responsibility for taxpayers. It ensures compliance with federal and state tax laws and helps maintain a clean financial record. However, when taxpayers fail to file their returns, they face a host of potential consequences—many of which can have long-lasting financial and legal repercussions. Here, we explore what happens if you don’t file your tax return and why it’s important to stay on top of this obligation.
Consequences of Not Filing a Tax Return
Failure-to-File Penalty The IRS imposes a penalty for not filing your tax return by the deadline. This penalty is typically 5% of the unpaid taxes for each month the return is late, up to a maximum of 25%.
Interest on Unpaid Taxes In addition to penalties, the IRS charges interest on any unpaid tax starting from the original due date of the return. The interest rate changes quarterly and is based on the federal short-term rate plus 3%.
Loss of Refunds If you are owed a tax refund and fail to file within three years of the original deadline, you forfeit your right to claim the refund. This means the IRS keeps your money, and it cannot be recovered after the three-year window.
Substitute for Return (SFR) If you don’t file a return, the IRS may file a substitute for return on your behalf. However, an SFR is prepared based only on the information the IRS has, which usually results in a higher tax liability because it doesn’t account for deductions or credits you may be entitled to claim.
Collection Actions Once the IRS determines that you owe taxes, they may initiate collection actions, such as issuing a tax lien or levy. A lien is a legal claim against your property, while a levy allows the IRS to seize assets like bank accounts, wages, and other income.
Increased Risk of an Audit Failing to file can increase your chances of being audited by the IRS. Non-filers often draw closer scrutiny, as the IRS may want to investigate why a return hasn’t been submitted.
Criminal Charges In extreme cases, failing to file a tax return can result in criminal charges. Tax evasion is a federal crime that can lead to fines up to $250,000 and imprisonment for up to five years.
What to Do If You Haven’t Filed
If you haven’t filed your tax return, it’s never too late to take action. Here are some steps to resolve the issue:
- File Your Return as Soon as Possible Even if you can’t pay the full amount owed, filing your return will minimize penalties and demonstrate good faith to the IRS.
- Pay What You Can If you owe taxes, pay as much as you can to reduce interest and penalties. The IRS offers payment plans and other options for those unable to pay in full.
- Seek Professional Help An experienced, competent, tax professional can help you navigate the filing process, correct errors, and negotiate with the IRS if needed. They can also assist with requesting penalty relief or filing prior-year returns.
- Request Penalty Relief The IRS offers penalty abatement programs for taxpayers who have a valid reason for not filing or paying on time. First-time penalty abatement may also be available if you have a clean compliance history.
Failing to file your tax return can lead to serious financial and legal issues, but proactive steps can mitigate the damage. The key is to address the situation promptly and seek professional assistance if needed. Filing your return not only keeps you compliant, but also protects your financial future. Don’t wait until the IRS contacts you—take control of your taxes today. If you have unfiled returns, contact us today at (972) 821-1991 or request a FREE consultation at https://jablonskytaxrelief.com
