A late tax return is a common avoidance tactic many individuals use when they aren’t able to pay the amount they owe, but it can lead to serious problems with the IRS. If you file a tax return late, you will not only delay the inevitable, you will be adding interest and penalties to the amount you owe for payment as well as additional penalties simply for filing late.
Others filing taxes late because they simply haven’t been able to get their returns completed in time due to unforeseen circumstances. Unfortunately, you still incur penalties even if you fully intend to file and do so a few months later. If you simply need more time to get your tax return information together and do the paperwork, your best bet is to file for an extension. This is a simple, one page form that allows you up to six additional months to file your tax return with no penalty as long as you send in a check for the estimated amount you believe you owe. When you file your actual return, any needed adjustments will be made without fines or penalties.
File Even if You Can’t Pay
If you don’t have the money to pay the estimated amount, you should go ahead and file your completed income tax return and request a payment plan. Filing in a timely manner, even without a payment, will reduce the penalties you will eventually have to pay. In fact, the penalties for not filing your income tax returns or filing late tax returns can amount to a 25% increase in what you owe.
If you are self-employed, filing tax returns late can hurt you years down the line. If you don’t file on time, the IRS doesn’t have any information to report to the Social Security Administration. When you retire and wish to draw Social Security, you may discover that you haven’t received credit for any of the years that involved late tax returns, substantially reducing your Social Security benefits.
To the IRS, late tax returns are considered a form of tax evasion because it indicates that you are trying to avoid paying your taxes, and they may begin to take legal action against you before you have time to get your financial situation under control. While they don’t necessarily take criminal action, they can put liens against your property and garnish your wages to recover the money you owe.
The IRS Can File for You if Your Not Careful
You may be asking yourself how the IRS can collect taxes that you owe if you haven’t even filed yet. The fact is, the IRS can file your taxes for you based on the income information they have for you if you have late tax returns that are a year or more old. This is especially dangerous for you financially because they will file based only on what you earned and not take into consideration any deductions you could have taken had you filed yourself.
If you already have a late tax returns, don’t wait any long, it’s just going to make the situation worse. Even if years have passed, the IRS will work with you and your tax representative to devise a payment plan or offer in compromise to clear things up so that you can put your IRS problems behind you.