Forgetting to file individual taxes or just simply not filing your taxes can be an easy trap to fall into and once you fall behind it becomes easier and easier to just not file year after year. If you don’t file your federal or state taxes, significant penalties and interest can accrue over time.
What Happens if You Don’t File Individual Taxes?
If you don’t file on time the IRS will charge a failure-to-file penalty of five percent of the taxes due per month up to 25 percent. On top of the failure-to-file penalty, there could potentially be a late payment penalty which is another half percent. If any given month that both of the penalties apply, that maximum penalty is five percent. The maximum total penalty for failure to file and pay is 47.5 percent (22.5 percent late filing and 25 percent late payment) of the tax.
This could mean a significant amount of penalties on a balance due with your return.
For example, if you owed taxes of $1,000, you’re looking at penalties of $475—that’s nearly half of the original amount you need to pay in. This doesn’t even include interest which is currently another five percent (at the time of this publish date).
If there are reasons for the late-filing of your tax returns, you may be able to get the penalties abated if you can show there was just cause to the IRS.
Examples of just cause may include:
- Fire, casualty, natural disaster, or other disturbances;
- Death, serious illness, incapacitation, or unavoidable absence of the taxpayer OR member of the taxpayer’s immediate family;
- Inability to obtain necessary records;
- Other reason(s) that establishes taxpayer demonstrated all ordinary business care and prudence to meet federal tax obligations, but was unable to do so.
What if You’re Owed a Refund?
On the flipside, what if you have a refund due and you haven’t filed?
Congratulations! What are you waiting for? If only it were that easy — there’s clearly a reason you’re not filing within the timeframe you should. If you wait too long, the IRS could keep your refund. After three years past the due date of the return, the IRS is no longer obligated to issue a refund to you.
If you wait to file a return too long, the IRS could keep your refund! After three years past the due date of the return, the IRS is no longer obligated to issue a refund to you.
If I Haven’t Filed, What Are My First Steps?
The first thing to do is to gather all of your tax documents for the years not filed. If you have lost your documents, the IRS will issue transcripts of all items that were reported to them for the unfiled years, for example, W-2’s, 1099’s, 1098’s, etc.
CPAs can assist you with this step by getting a Power of Attorney Form giving them authorization to contact the IRS directly on your behalf. You should gather your last filed tax returns as well. Your last tax return often has information that carries forward to the next tax year that will affect how the unfiled tax returns are filed.
If you’re having a CPA assist you with your filing, this is oftentimes a road map for how the unfiled tax returns should be filed and helps them look for missing information.
File for a Tax Extension
Most individual tax returns can be extended by filing Form 4868: Application for Automatic Extension of Time to File by the original due date of the return. Form 4868 offers an automatic six-month extension.
Don’t Be Scared — And Ask for Help
Getting behind in filing your tax returns can be daunting, so don’t be afraid to ask for help. At Froehling Anderson, we have experience helping late filers and can help manage the communication with the IRS if they have contacted you about your unfiled tax returns. We’ll offer clarity and help you feel at ease knowing that you’re protecting your business by adhering to tax rules and staying on the good side of the IRS.
