January 19, 2022
The consequences of past-due returns
Despite the best intentions, some people are simply not ready to file their taxes when the deadline arrives. Whether a taxpayer is unprepared, willingly puts off filing, or is too stressed out by the situation to do anything at all, here are some of the consequences of not filing taxes on time.
Penalties and interest
The penalty for unpaid taxes is roughly 5% of the taxes owed. That amount can swell to as much as 25% if the return is not filed. The IRS will also charge interest on penalties that have not been paid. If a taxpayer goes months or even years without fling, the total amount of penalties and interests can amount to a significant sum.
Other problems that may arise if you don’t file your taxes on time include:
- If you are applying for a loan or need to prove your income for some other purpose, you will need your most recent tax returns. If you’ve skipped a year, you will have no way to prove your financial standing for that year.
- If you are self-employed, you will not get credit for Social Security and other programs determined by income until you file your taxes.
- If you don’t file, the government will eventually file a return for you, based on W2s and other information they have access to. This return will likely not be as tax-friendly as the one you file independently.
Worst case scenario
If you let this problem go on for too long, and you owe the government taxes, the IRS may initiate collection proceedings against you. By taking action quickly and making up for any steps you have missed along the way, you can help yourself avoid such a costly and stressful consequence.