If you have been procrastinating about filing your 2017 tax return or have unfiled tax returns for prior years, you need to consider the consequences, such as penalties, interest, and aggressive IRS collection actions. Plus, if you have a refund due for a prior return you may end up losing it.
Penalties and Interest
If you haven’t filed your return and you owe taxes, you will be subject to both a late payment and a late filing penalty. You should file a return and pay as much as possible to reduce the penalties and interest.
The failure-to-pay penalty is one-half of one percent for each month, or part of a month, up to a maximum of 25% of the amount of tax that remains unpaid from the due date of the return until the tax is paid in full.
There is also a penalty for not filing on time. The failure-to-file penalty is five percent (reduced to 4 ½% when the late payment penalty is assessed) of the tax owed for each month or part of a month that your return is late, up to a maximum of 25%. If your return is over 60 days late, there’s also a minimum penalty for late filing; it’s the lesser of $210 or 100 percent of the tax owed.
In addition to late filing and late payment penalties, interest accrues on the unpaid balance, currently at the rate of 5 percent. Even if you have received an extension, the late payment penalty and interest will accrue on any balance due, so it’s best to file as soon as possible to minimize them.
Of course, there’s no penalty for filing a late return if a refund is due. Penalties and interest only accrue on the unfiled returns of taxpayers who have a balance due and don’t pay by the deadline. However, you can lose your refund and potentially forfeit any tax credits you are entitled to by waiting too long to file. In order to receive a refund, the return must be filed within three years of the due date.
Taxpayers who continue to not file a required return and fail to respond to IRS requests to do so may be subject to a variety of enforcement actions, all of which can be unpleasant.
You are strongly encouraged to bring yourself into compliance with your federal—and state, if applicable—income tax return filings. The tax professionals at East Coast Tax Consulting Group can help you file back returns and, when necessary, assist in establishing a payment plan or finding other solutions to resolve your back tax problems. Call us today at 866-550-7655 for a free consultation.