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Old 09-04-2008, 03:04 PM
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What are the consequences of not filing your Tax Return on time?

What are the Consequences of Not Filing Your Taxes On Time?
Taxpayers sometimes think that it is a smart idea not to file their tax returns so as to avoid having to both declare their actual tax liability to the IRS and having to pay the IRS their fair share of their tax liability.

This situation is especially common for Taxpayers who choose not to file their tax returns because they find themselves in a situation where they already know that they owe money to the IRS and they do not have the available funds to pay. Other individuals may find filing taxes to be too complicated or not the most attractive option. Despite the fact that you may seem secure, the IRS will catch up to you and the consequences will be burdensome.

The importance of filing one’s tax to the IRS (and on time) cannot be stressed enough. When it comes to overdue taxes, the longer you procrastinate the more serious the situation will get with the IRS. If it becomes apparent, that you will not be able to pay your taxes when they are due, you should contact the IRS immediately and discuss your situation with them. The most critical thing is that you do not ignore the filing of your tax return. The following are some of the serious consequences of not filing your taxes:

1) Penalty for Late Filing of Taxes
A penalty of 5% will be charged for the late filing of taxes per month. This particular penalty can be avoided by filing “Form 4868 Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.” This will enable you to obtain an automatic extension of time to file your tax return until October 15 to file without having to pay a late filing penalty, assuming that you have paid your entire tax liability in full.

The law states that you should pay at least 90% of the total amount due. If this is not possible a monthly penalty of 0.5% will be incurred. If it is necessary for you to file your taxes past when they are due be sure to request and confirm an extension if you want to avoid heavy penalties.

2) Penalty for Not Paying Taxes
The consequences of not paying your tax liability is not as severe as not filing, but you must make every effort to pay even a part of the tax dues. If you fail to pay your tax dues after a few months, the penalty will increase by 1% for each month. If you are still delaying your payment, the IRS may take further action by forcing you to get a loan by mortgaging your home or even by levying your bank accounts.

3) Penalty for Not Filing Your Taxes
Not filing taxes at all comes with heavy consequences given that the IRS would consider this as cheating the government. You should make every effort o file your taxes on time and have the available funds to pay them, as having a debt with the IRS is a very unpleasant situation. The penalty incurred is 5% of the amount due per month, but cannot exceed 25%. For example, suppose you have a liability of $10,000 and delayed in paying for four months. The penalty would increase to 20% and you will be required to pay and additional $2,000.

4) Penalty for Accuracy-Related Errors
If a Taxpayer shows a clear negligence and disregard of the rules and regulations during the filing of his or her individual tax return and that results in a substantial underpayment, the IRS will impose a "Penalty for Accuracy Related Errors of 20%." This is in addition to the additional tax liability!

5) The IRS may prepare your Tax Return without allowing you to take any of your allowable deductions.
The consequences of this situation are be that you would be subject to a substantial tax liability as you would not be able to claim any of your entitled personal exemptions or your standard deductions. Hence, CPA’s and other Tax Professionals always advocate that taxpayers not only file all their tax returns but they should file these tax returns by at least the extended due date of the tax return, which is currently October 15, 2008.

Additionally, if there are any delinquent tax returns that are due, you should consider filing these returns as soon as possible to avoid the wrath of any potential IRS action, such as a levy on your bank accounts.

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Ask TaxGuru Please refer to the legal disclaimer.

Last edited by TaxGuru : 08-26-2009 at 09:22 AM.


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