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What Happens If You Don't File Tax Returns?

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What Happens If You Don’t File Tax Returns?

Comments Off on What Happens If You Don’t File Tax Returns? 11 October 2013

Everyone can agree that doing their taxes can be pretty painful sometimes, but what can be even more painful is dealing with the consequences of not doing them. There are many reasons that people do not file their taxes: maybe they forgot, perhaps they were sick, maybe they don’t like the government, or probably more accurately, they were afraid that they had to pay. Whatever the reason for unfiled tax returns, Uncle Sam does not look too kindly on people who do not file their taxes. If a person makes over a certain dollar amount per year, then they must pay taxes on their income.

So what exactly happens if someone fails to file their taxes?
Fines and fees, of course. The government wants its money. There is a penalty fee of 5% of what you owe per month, as well as compounded daily interest. If someone still has unfiled tax returns 60 days after the filing date, there is a $135 fine added on as well.
The IRS may also choose to file a “substitute return” for someone with unfiled tax returns. Of course, the IRS will not be searching for any deductions to include like so many accountants would be. They want the biggest possible amount in any situation.
In extreme cases there is, of course, the possibility of imprisonment. Again, probably reserved for extreme cases like criminal tax evaders.

What should someone do in this situation?
First of all, no matter how late, file. And the sooner the better. If someone is truly unable to pay off large tax bills, they can contact the IRS to arrange for possible payment options. Some options may be:
An Installment Agreement: The IRS may allow some people to make monthly payments, or installments.
A Temporary Delay: The IRS can temporarily delay collection due to someones inability to pay.
An Offer in Compromise: This is a last resort option after all others have been attempted. If someone qualifies for the Offer in Compromise, the IRS will settle for less than the full amount due.

No one likes to file their taxes whether they owe money or not, but just refusing to file is not the answer. As with any other person or corporation, Uncle Sam just wants what is due to him. It is unrealistic for any taxpayer to think that they can avoid paying their taxes forever. The longer someone waits to file, the more the financial penalities add up, interest accrues, and it just becomes a very expensive mess that could have been very easily avoided.


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