In the best of times, most taxpayers dread the tedious task of compiling their financial records, tax documents and filing their taxes. However, if you believe you will owe taxes and are unsure of where the economy in a week from now, much less a year from now, you may be tempted to attempt to hide from the IRS.
Reason To File Timely – Penalties
So why shouldn’t you? To make it simple, penalties and interest.
- Late Filing Penalties for your 1040 return is 5% per month, up to 25% in total.
- While Late Payment Penalties are less with only 1/2 % per month, those can continue to grow to a maxim at 25% as well.
- Do you have an ownership interest in a Partnership or S-Corp? If so, there’s a $200 per month per shareholder penalty for late filing.
- Remember that not only will you be paying interest on the taxes owed, but the penalties as well.
Other Reasons To File Timely
- Eliminate Tax Identify Theft. The more time that you are not using your Social Security Number to file a tax return legally, the longer it’s available for criminals.
- The sooner you file and the tax is assessed, the sooner the IRS 10 year clock to collect expires.
- What if you are owed a Refund? You only have 3 years to file the return to get refund. Don’t miss your chance!
What Happens if You Don’t File?
The IRS is authorized to file a Substitute for Return (SFR) on your behalf if you don’t file. However, the IRS is not in the business of trying to get you a refund or reduce your tax owed. The IRS will claim income but will request the absolute minimum in deductions, the worst filing status, and won’t claim credits. If they believe you’re owed a refund, they won’t file the SFR. Of course, once they file, the late filing penalties and late payment penalties (plus interest) go back to the due date of the return.
Have Questions or Need Help?
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