From mathematical errors to missed tax breaks, making at least one mistake during tax season is likely to happen sooner or later. However, whether forgotten or purposefully avoided, failing to file your taxes by April 15 is by far the worst mistake of all! The following consequences of being late can be severe, but are also easily avoided.
Monetary Loss for Delayed Filing
If you are expecting a tax refund, late penalties may not apply. However, if you owe money instead, failing to file your taxes can become significantly more costly than it needs to be, and you can end up owing the IRS much more than if your taxes were filed as early as possible.
- Penalties for a late filing begin immediately after the deadline on April 15. This is usually five percent of the amount owed, with another five percent added every month that follows, up to five months. If you fail to file your taxes by September, the amount you owe can be a full twenty-five percent more than if your taxes were filed early.
- If your taxes were filed by the deadline though remain unpaid, these penalties still apply, though at a much reduced rate. In this case, the usual fee added is between one-half to one percent of the remaining taxes for every month. So if you don’t have the money to pay what you owe to the IRS immediately, it is still far better to file by the deadline, rather than to neglect them entirely.
- If you both file late and owe taxes, the maximum penalty of five percent applies for every month you delay.
- If you meet the deadline, but do not file your taxes as early as possible, it can take significantly longer to receive any refund you may be owed.
- If you fail to file your taxes for a full three years, the government keeps your refund. This is not considered a payment on taxes owed in the following years; it is quite simply no longer your money.
If the IRS owes you a refund, the government will not go out of their way to get you to file your return, even if you fail to file your taxes by the April 15 deadline. Even after this, you do not have unlimited time to file.
Your money does not do you any good if you do not have it! If you file earlier, you get your money earlier, and at least you have the opportunity to earn the interest from it in your savings account. If the IRS holds your money for months longer than they need to, it is essentially a free loan for the government, as they will pay no interest on anything you are owed.
Legal Actions for Failure to Pay
If you fail to file your taxes, the IRS may try to contact you frequently.
This can quickly become much more than a nuisance. If you continue to fail to file your taxes, the IRS can file a substitute for return for you, and they are not likely to make it free.
- The IRS will calculate any income you may have received from any taxable source, even from self-employment. This substitute for return will not, however, consider any tax credits or deductions you may be eligible for. This often results in an overpayment, on top of any late penalties that may apply, or instead significantly reducing your refund.
- You do still retain the right to file your taxes on your own if you receive a bill from the IRS stating they filed such an SRF, if you desire to claim any deductions.
If you continue to fail to file your taxes, the IRS will often send warning letters to you asking for payment, though this quickly grows more severe than simple correspondence if ignored.
- If the amounts owed are over $25,000, the IRS will send someone to your house in person to collect the payment. If you continue to leave this bill unpaid, the consequences continue to grow ever worse. This can start with garnished wages, and, if it gets bad enough, the IRS may seize your property! In order to pay your taxes, you may end up losing even your house and car.
- Finally, if still unpaid, failing to file your taxes can lead to prosecution for tax evasion, which often includes arrest and a lengthy prison sentence. This can end up with you paying court fees, on top of the original tax debt.
As you can see, there are many consequences for if your taxes are left unfiled or unpaid, ranging from the simple to the severe. Surely it is better to file early, since by doing so you can all of these, saving yourself both time and money!