Did you, by chance, forget to file your taxes…say for the last ten years? Or maybe just this year; after all, everything’s been such a mess.
But how late is too late to file? The short answer is never. You can always file late. You just have to understand that it won’t be the same as if you filed on time.
No Time Limits on Collections
Nope. There are no time limits on the IRS for tax collections. So, don’t think the federal government won’t notice you skipped a year or ten. It files a substitute return for you, but you really don’t want them to do that.
Granted, this year, you didn't have to file until July 15, 2020. You would think the extra time would help, but maybe the delayed date didn't just roll around; it flashed right by. You could be excused with the pandemic and all, but you still have to file your taxes eventually. Better sooner than later.
After all, neglecting to file and pay your income taxes is illegal, you know.
The IRS does offer a handy tool, but you need to use it by tax day. It’s called an extension. If you know you aren’t going to be able to file by tax day, make sure to file for an extension before then. Filing for an extension gets you an extra six months to get your stuff together.
By the way, you must ask for the extension. The IRS won’t just give it to you automatically, except in certain, very limited circumstances.
- If you are a US citizen or resident and live or work outside the country during the tax day deadline, you get a little more time to file and pay without asking for an extension. Warning: you only get two extra months, so get a hustle on.
- If you are affected by certain natural disasters, you may get more time to file and pay. The IRS keeps a list of qualifying disasters for you to consult. The time of the extension varies.
- Suppose you are a member of the military. In that case, you may get an automatic extension, depending on where you are and what you're doing. In some situations, you might even get more than six months.
If you know you won’t be able to file by midnight on tax day, or you can’t pay in full at that time, make the effort to request an extension. You can buy yourself a little time and eliminate the chances of getting a failure to file penalty.
About Those Penalties
If you haven’t filed your tax return, you can be charged a failure-to-file penalty. Failure-to-file comes to five percent of your tax bill per month. There is a limit - the penalty cannot exceed 25% of your unpaid taxes - at least if you pay within 60 days after the deadline.
After that, the minimum penalty is $135 or 100% of the unpaid tax. (You pay the smaller one.)
The failure-to-pay penalty, while not as harsh, still adds to your tax bill. Failure-to-pay is typically 0.5% (half a percent) of your unpaid taxes per month. Again, the maximum is 25% of your unpaid taxes, and if you already have a failure-to-file penalty, it isn’t added on.
Failure-to-file and failure-to-pay penalties aren't the only things that will swell your tax bill. The IRS charges interest on the amount you owe until you pay it off. This is true, even if you filed for an extension. An extension just eliminates the failure to file and failure to pay penalties. At least, until you fail to file or pay at the end of your extension.
Filing Missing Returns
First of all, the IRS won't hate on you for not filing before or filing multiple returns now. They won't blacklist you for making a mistake. If you filed for an extension, they won’t even care that you didn’t get your taxes done on time, as long as you filed for the extension and are prepared to pay interest.
File your missing returns before the IRS demands it. Just as there is no time limit on the IRS for collecting taxes, there is no time limit beyond which you can skip filing. However, if you have a refund due, you have up to three years from the due date on the return. After that, kiss your refund good-bye.
There are other benefits of filing missing returns:
- It protects your Social Security benefits if you are self-employed.
- It makes it easier to get a loan, which can be denied or delayed if you can’t produce returns to prove your income.
- You sleep easier because you don’t have to worry about the unfiled taxes anymore.
Here’s the stick end of not filing taxes. You can get charged with a criminal offense if you don’t file. The IRS has a few crimes to pick from, but they all relate to evading taxes and payment. You could get five years in prison and up to $250,000 in fines.
Granted, the IRS only has six years to take you to court, but really, it’s better if you don’t go there at all.
But What If I Can’t Pay?
The IRS isn’t a complete ogre. The agency understands that life happens, and not everyone can pay their taxes in full or on time. They do appreciate it, though, if you deal with the matter ahead of time. Obviously, if you haven’t filed your taxes in years, you might lose out on a little goodwill, but don’t let it stop you from filing and paying.
If you can't pay your taxes, penalties, and interest in one go, apply to the IRS for a payment plan. They have several to pick from with different time limits on them. For those who can pay the debt within a couple of months, you can set up an Online Payment Agreement.
If you just can’t pay the entire amount, you may be able to negotiate a lower payment. An Offer in Compromise can let you settle your tax debt for a smaller amount. Make this your last resort, though. Filing for one is expensive, and you’re already in the hole. If the IRS doesn’t take it, you are on the hook for even more money.
If you are a US citizen or resident, you are expected to file and pay income taxes. It isn't a secret. In fact, you have to be living under a rock not to know when tax day is coming around. However, sometimes things happen, and you just don't get around to it. These days, it's entirely possible you were stuck in the hospital and couldn’t deal with it.
The best course of action is to take care of things as soon as humanly possible to minimize penalties and interest. Unless you skipped filing on purpose, the IRS will work with you.
So will we. Contact Top Tax Defenders. We help with tax problems.