November 28, 2022
Accounting, Bookkeeping, Taxes
If you haven’t done a tax return in years, it could have serious repercussions and cost you money. You run the risk of forfeiting your right to a refund or owing the IRS hundreds of dollars in the form of taxes, fines, and interest.
Now, you legitimately have a tax problem.
Fortunately, you still have time to file past-due tax returns, which may help you fix some of these problems. And if you recruit a bit of help with the paperwork, it might be smoother than you’d expect. Below, we have listed some of the consequences of failing to file your taxes and some ways to present them in a timeline format for your convenience.
There are a few types of consequences to consider with the IRS when you haven’t filed tax returns.
The IRS may initiate a lawsuit against you if you don’t file your taxes for a long period of time. This can entail putting a mortgage on your residence or having your assets seized. In some circumstances, you can also face criminal prosecution. It is ideal to contact a tax lawyer or other tax experts if you are concerned about any of these repercussions. With Peak Reliance and their highly qualified tax experts, you need not worry about that.
Every month your tax return is overdue, the IRS charges you a ‘failure to file’ penalty and a ‘failure to pay’ penalty totaling about 5% of the unpaid amount. However, the overall fees are limited to a maximum tax penalty of 25%, so luckily they won’t continue to rise indefinitely.
The IRS may decide to collect your salary or bank account to pay your tax debt if you haven’t filed taxes in a number of years. Wages or other sources of income may be taken as a result of this.
Additionally, the IRS may publish a notice of a federal tax lien, which may limit your future financial options. Your ability to obtain credit or take out loans may be restricted by an IRS tax lien. The government can now have a role in your transaction and will deduct the tax due from the proceeds of any sale, which can limit the amount of property/assets you can sell.
In the worst-case scenario, the IRS can impose a penalty of up to $250,000 in fines and up to five years in prison for deliberately failing to file taxes.
You may have problems for a variety of additional reasons if you don’t file your taxes. You risk losing out on potential tax refunds as well as opportunities in your life where you must provide your most recent tax returns. You won’t have any tax returns to offer if you haven’t recently filed your taxes.
When you apply for a passport, for instance, you could be required to present your most recent tax records. When you apply for a mortgage, rent, or other loan, you’ll almost probably be required to provide your tax returns. When you apply for health insurance, you can also be asked for your most recent tax returns.
Your most recent federal income tax returns are also required if you are applying for financial aid on behalf of yourself or your child. Finally, the income you disclose on your tax returns is a factor in determining your retirement benefits, including Social Security and Medicare. Your future financial security may be at risk if you fail to file your tax return for several years.
The IRS frequently files a ‘Substitution for Return’ on your behalf if you fail to file your taxes. The IRS makes an estimate of what it believes you owe, but it ignores any exclusions or deductions.
The IRS will next notify you via tax notice CP3219N, often known as a ‘90-day letter’, of what it intends to file on your behalf. The IRS will submit the tax return it believes you are required to file if you don’t respond to the notice, at which point costs will start to accrue.
You can choose how to proceed if the IRS has filed substitute tax returns on your behalf. One choice is to just pay the tax and associated fees that the IRS estimates you owe. The IRS does give several tax relief alternatives, like an installment arrangement, if you are unable to pay the full amount due at once. This tax payment method is rather straightforward.
A tax levy will be resolved by paying the due taxes and fees, but you may not receive the tax documents you require for other purposes, such as obtaining a new mortgage loan. Additionally, you’ll probably pay more than necessary because there are no deductions on the IRS substitute filings.
You may spend far less and have the tax documents you may need for future financial decisions if you choose to file your own tax returns for the missing years.
You’ll need to perform some forensic accounting to estimate your income and expenses over the years if your bookkeeping become a little sloppy during the last 10 years for which you had unfiled tax returns. If you want to outsource some of the work, a forensic accountant or a certified public accountant (CPA) can assist you with this.
· Completing Records:
To be ready to submit, sort out all of the gaps and missing data in your financial records. To properly calculate your income and claim the most tax deductions and credits on your tax return, you need to accurately record your income and spending for each year.
· Supporting Paperwork:
Your receipts and income statements will be included in your financial records, but keep hold of them and any further proof that may assist you to justify why you took so long to file your taxes. You might feel more at ease once you complete the clean-up procedure if you have documentation to back up your calculations and your delay.
You can mail the IRS your unfiled tax forms as soon as you obtain the necessary documentation because there is no deadline for doing so. Better yet, if you meet the requirements, you may still file a tax return up to three years beyond the filing date.
Keep in mind that submitting a company tax-return consists of two steps. The first step is to send the IRS the company tax forms. With the help of this form, you may formally file your taxes and inform the IRS about your income and outstanding debt.
Paying the taxes you owe is the second step in filing the missing tax returns. You may easily pay your taxes with a bank draft or credit card. Of course, you will have a huge tax burden to deal with if you’re filing years’ worth of tax returns at once.
Fortunately, even though the due date has passed, the IRS is ready and able to deal with taxpayers who are unable to pay the entire amount owed in back taxes by the deadline. If you are unable to make the entire payment right away, there are various choices and installment plans you can choose from.
Some options include:
Setting up an installment or payment plan.
Pursuing an offer in compromise; a deal with the IRS to settle your tax debt for less than you owe.
Request a ‘Currently Not Collectible’ status to delay payment until you can afford to pay it.
Take out a loan to cover your tax debt.
Make sure the accounting software has been updated for future tax filings before you close it, after organizing your recently updated tax forms. Tracking income and spending and submitting taxes on time each year may be made simpler with a clear accounting system. Set up your company’s accounting system now to ensure that you won’t have to worry about tax problems with federal or state tax returns this year or in the future.
If you’re prepared to take on years of unfiled tax returns, you might need assistance going back over your accounting records, updating your income and spending, and making sure you’re not overpaying taxes. Peak Reliance has the necessary experience in organizing the finances. We have experienced and qualified tax experts to assist you in filing the missing returns. Check out our pricing plans or call us at +1 (718) 218-5558 for more information.
Post Tags :
Tax filing, Tax Season