It is relatively easy to postpone the filing of your taxes. The time to organize tax documents and complete returns is sometimes hard to come by. However, if you wait too long and miss the deadline, it’s important to prepare for the consequences.
Do You Actually Have to File Taxes?
Not everyone is required to file a federal tax return every year, yet many people are. Whether you have to file depends on factors like your filing status, age, income type, and total income for the year. The IRS provides income thresholds and a filing tool to help taxpayers determine whether they are required to file. Even if you are not legally required to file, it may still help to submit a return if federal taxes were withheld from your paycheck or if you qualify for refundable tax credits.
This matters because many people assume they can skip filing if they earned less than expected or had only part-time income. In some cases, that is true. But in others, failing to file when required can trigger penalties and IRS notices. And even when filing is optional, not filing can mean leaving money behind. If you may be owed a refund, the IRS generally still requires you to file a return in order to claim it.
What happens if you don’t file taxes?
If you miss your tax obligations, the IRS can impose several penalties that will force you to pay an even higher amount to the government. Even when you can’t pay your debt in full, you should still file your taxes on time. If you face dire financial challenges, you could file an extension that allows you extra time to figure out your tax situation.
5 Consequences of Failing to File Your Taxes
Late Penalties
The penalty for filing late takes effect immediately after the April 15th deadline. The late penalty is calculated at 5 percent of the outstanding taxes you owe for each month delayed and is capped at 25 percent. If you file by the deadline but still owe taxes, you may be penalized 0.5 to 1 percent of unpaid taxes each month..
Delayed Reimbursement
If you file your taxes beyond the deadline, not only will your refund face a penalty, but you will also face delayed reimbursements. This will affect your ability to save or invest your income in other revenue-generating activities.
Forfeiture of Tax Refund
The IRS typically gives you three years after the tax year to file a claim for your tax refund. Once this window has elapsed, the IRS will treat your unclaimed refund as a generous donation leading to the forfeiture of the whole amount.
You May Face a Substitute Return
If you fail to submit your tax returns on time or after an extension of the deadline, the IRS will attempt to contact you repeatedly and remind you to file your tax returns. If you ignore their advice, the IRS can file a substitute for return on your behalf.
Arrest
Should you fail to pay a tax debt amounting to over $25,000, you could be arrested and charged with tax evasion. Additionally, you may lose your wages and assets.
What Happens If You File Late but Are Owed a Refund?
If you file late but are owed a refund, the good news is that the IRS generally does not impose a failure-to-file penalty when no tax is due. However, there is still an important deadline: if you wait too long, you can lose your refund entirely. In general, the IRS says you must file within 3 years of the return due date to claim a refund for withholding, estimated payments, or certain credits.
That means filing late is still far better than not filing at all. Many taxpayers mistakenly assume there is no reason to file if they are getting money back, but delaying too long can permanently forfeit that refund. The same issue can affect eligibility for credits tied to the return. So if you are behind on taxes but expect a refund, the smarter move is usually to file as soon as possible and preserve your right to claim what you are owed.
Can IRS Tax Penalties Be Reduced or Removed?
Yes, in some cases IRS tax penalties can be reduced or removed. The IRS offers penalty relief options such as First Time Penalty Abatement, reasonable cause relief, and certain statutory exceptions. First Time Penalty Abatement may apply if you have a clean recent compliance history and have filed all required returns. Reasonable cause relief may apply when circumstances like serious illness, a natural disaster, or a death in the family prevented you from filing or paying on time.
Penalty relief is not automatic, but it can significantly reduce what you owe. In some cases, related interest may also be adjusted if the penalty is removed.
Let Us Help You!
Our tax resolution attorneys provide the best representation before the IRS and state taxing agencies. Contact us today for more information about our tax attorney consultation services in Salt Lake City or IRS tax help.
