What Happens if You Don’t File Taxes on Time?

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Most people know that they are supposed to file their taxes every year. But what happens if you don’t file taxes? What are the consequences?

In this article, we will discuss the consequences of not filing your taxes, as well as what to do if you can’t afford to pay. We will also provide information on how to file your taxes late. So whether you’re a first-time tax filer or you’ve missed the deadline in the past, read on to find out all you need about the topic!

What Happens if You Don’t File Taxes on Time

As a taxpayer, you have a legal obligation to pay your taxes every year. If you don’t file your taxes on time, the IRS can impose penalties and charge interest:

  • penalty for filing late – 5% of your unpaid taxes for each month that your return is late
  • maximum penalty 25% of your unpaid taxes
  • interest on any amount you owe from the date the tax was due until the date it is paid – the interest rate is currently 3% per year

Paying Taxes Late? Here’s What You Should Do

If you forgot to file taxes or you’re late, don’t worry. Better late than never! Here are a few steps you should follow to get your taxes back on track:

Determine How Much You Owe

It can be quite arduous to calculate how much taxes you owe especially after a delay. You can use the IRS’s online tool, the “Where’s My Refund?” application, to request the status of your tax refund and find out how much you owe. Moreover, if you are unsure about how much you owe, the IRS also offers a tax estimate calculator to help get an estimate of your tax liability.

Negotiate Your Tax Bill

If you haven’t paid your taxes in a long time, chances are you have a huge amount due considering the penalty for late tax filing.

Here are two ways to handle it:

Partial Payment Installment Agreement (PPIA)
If you can make partial payments, the IRS will let you enter into a Partial Payment Installment Agreement (PPIA). This will allow you to pay off your taxes over time. However, it is quite difficult to qualify for this type of plan and depends on your monthly income, your ability to pay, all your current expenses, and your assets and equity.

Offer in Compromise (OIC)
If you owe taxes and can’t afford to pay the full amount (late tax filing penalty included), you may be able to settle your tax debt for less than the full amount with an Offer in Compromise (OIC). To qualify, you must prove that:

  • Paying your full tax liability would create a financial hardship considering your salary
  • You haven’t been able to pay your taxes in full because of exceptional circumstances or limitations
  • The IRS has some other way to collect the full amount of the tax debt from you

An Offer in Compromise (OIC) is a deal between you and the IRS. You agree to pay a certain amount after deduction, and the IRS agrees not to pursue any further collection actions against you. The late tax fee is also considered while getting an estimation of this amount. The agreement is binding, and the IRS will not try to collect the full amount of the debt from you.

Consult a Lawyer 

We understand that taxes can be quite complicated and while there is always an option to do taxes on your own, it is important to speak with a lawyer to minimize your taxes and understand the consequences of not filing taxes. Filing late or not filing at all can result in penalties and interest charges from the IRS. You may be able to work out a payment plan or arrangement with the IRS, but doing so without legal representation could hurt your case. Speak with an experienced tax attorney to discuss your options and find a solution that works for you.

DID YOU KNOW: The tax code contains more than 74,000 pages! That’s why many self-employed people opt for business tax software or seek the help of tax services

Key Takeaways

  • The IRS levies 3% interest and additional penalties for not filing taxes on time.
  • To determine exactly how much tax you have to pay, you can request the IRS to provide you with the estimation or use their tax calculator.
  • As a taxpayer, you’re offered several options from the IRS to get your taxes back on track.
  • A Partial Payment Installment Agreement (PPIA) allows you to make partial payments.
  • With an Offer in Compromise (OIC), you can get rid of your tax debt without having to pay the full amount.

What if You Don’t Have Enough Money to Pay

Now that we’ve discussed what happens if you are late in filing taxes, let’s discuss what happens if you don’t have enough money to pay your taxes. Although taxes are calculated based on your income, the penalties and interest charges can really add up.

First-Time Penalty Abatement

If you have never been late on your taxes before, you may be eligible for what is known as first-time penalty abatement. This means that the IRS will waive any late fees or penalties that you may owe. To qualify, you must file all required tax returns on time and pay any taxes due.

Consider Taking a Loan

Not filing your taxes can have a huge impact on your future financial goals as it creates a big liability. Many people take loans to pay off personal debt, so why not take one to pay off your taxes? You’ll make sure that you don’t incur late fees and penalties. Be sure to shop around for the best rates and terms before taking out a loan.

DID YOU KNOW: An average taxpayer spends 13 hours doing their taxes! Some forms can take a lot of time and taking the help of tax software for lengthy forms like 1041 can help.

Conclusion

If you don’t file taxes, there can be a number of consequences. You may be subject to late fees or a penalty for not filing taxes. Consult a lawyer to discuss your options and find a solution that works for you. You may also want to consider taking out a loan or paying your taxes through a Partial Payment Installment Agreement (PPIA) or with an Offer in Compromise (OIC).

FAQ

How long can you legally go without filing taxes?

The general rule is that you must file a tax return within three years of the date the return was due or the date it was actually filed, whichever is later.

Does the IRS forgive tax debt after 10 years?

No, the IRS does not automatically forgive tax debt after ten years. However, initiatives are available to help taxpayers who are struggling to pay their taxes.

Can I go to jail for not filing taxes?

Yes, you must be aware of what happens if you don’t file taxes. It can lead to penalties, interest, and jail time in extreme tax evasion cases.

Sources

ABOUT AUTHOR

I learned a lot about finance after working for a digital marketing company specializing in investing and trading stocks, forex, etc. After that, I got exposed to other verticals such as wealth management and personal finance, which further improved my understanding of the financial world.

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