What You Need to Know About Past Due Tax Return?

On: June 19, 2020

All U.S. residents must file their income tax returns on an annual basis. Failing to do so is illegal and can have serious negative consequences. According to the IRS, you must file all tax returns that are due, even if you cannot pay in full.

Why File Tax Returns?

Aside from the fact that it’s the law, there are several reasons to file tax returns. Important Programs like federal aid to higher education requires copies of tax returns of the applicant for approval of loans. Financial and lending institutions also require copies of filed tax returns to approve a loan or finance a business. Further, your lifetime earnings reported to the IRS are the basis for Social Security retirement, Medicare, and disability benefits. Reported earning is also the base for state benefits like unemployment compensation and industrial insurance.

What Happens If You Do Not File?

If you do not file your tax returns, the IRS may impose a range of civil and criminal sanctions on you. Those who failed to pay and file their tax returns on time may be subject to penalties. Specifically, what is called a “failure to pay” penalty. There are some cases where this penalty can be waived. See a qualified tax attorney to determine if your quality to dismiss your “failure to pay” penalty. Moreover, interest is charged on taxes that have not been paid by the due date, even if you have an extension of time to file. Interest is charged on penalties as well.

Penalties

If you fail to file a required tax return by the due date, the IRS will impose a penalty of 5% per month. If you owe taxes on the return, the IRS will also charge a penalty of  0.5% per month. Interest will also be imposed on any unpaid tax from the day it was due until the date you pay it in full. If the tax is not paid within ten days of notice of intent to levy property by the IRS, the interest is increased to 1%.

Substitute for Return (SFR)

The IRS can also file a substitute for return (SFR) form for you if you do not do it voluntarily. First, the IRS will send you a series of letters explaining the possible action IRS may take as part of the Substitute for Return Program. The SFR prepared by the IRS will be basic and will not include any of your additional exemptions or expenses. The IRS will compute the tax liability and send it to you, including penalties and interest. The IRS prepares the return based on information provided by your employers, banks, financial institutions, and other payers. If you have a refund due, then you need to file your tax return within three years of the due date of the return, or else you will lose your refund. Regardless of what your reason was for not filing, you should always make sure to call Leading Tax Group and don’t attempt to do it yourself.