Did you miss the April 17, 2012 tax filing deadline for 2011 taxes? There are consequences for not filing your taxes by the IRS deadline which vary depending upon your situation. In most situations the consequences can be minimized if you take action immediately rather than trying to hide from the situation. The longer you wait to file, the larger your penalties and problems become (if you owe taxes).
Penalties and Consequences of Missing Tax Deadlines
Your personal situation contributes to the extent of consequences and penalties you face for missing the tax filing deadline. For some, the consequences are minimal or even nothing at all, while others end up paying high interest and penalties. Here’s a list of all potential penalties and consequences involved with missing a tax deadline:
- No Penalties or Refund Loss Within 3 Years: If you are owed a refund from the IRS and you file your taxes within three years, you won’t incur penalties or loss of refund. File beyond the three years however, and you’ll forfeit the refund you would have gotten.
- Failure to File Penalty: A .5% monthly penalty up to 25% of the total amount owed is incurred when you owe the IRS and have not paid or filed your tax return.
- Failure to Pay Penalty: A penalty incurred by individuals who file their taxes but do not pay the amount owed. The penalty starts at .5% a month and can reach up to 25% of the original amount owed to the IRS.
- Combined Penalty: This penalty is a combination of the Failure to File and Failure to Pay penalties. The maximum penalty is up to 47.5% of the original amount owed to the IRS.
- IRS Tax Collection: If you don’t resolve the money you owe or make arrangements to file back taxes, the IRS will have no choice but to enter the tax collection process. Your tax return will be processed by the IRS for you, and they will not take the time to find deductions or credits that you are entitled to which means you will be paying more taxes than you would have if you filed them on your own. You will receive letters from the IRS instructing you to take action or tax liens and levies will be made. You may face wage garnishments or assets being taken from you in order to pay the IRS.
- Tax Fraud Penalties: If it’s determined you skipped filing your income taxes because you wanted to avoid paying taxes you owe, you could face tax fraud penalties up to 75% of the total original taxes you owe.
- Jail: In some severe and rare cases, people who don’t file tax returns can be put in jail for a year and fined $25,000 for every year a tax return wasn’t filed.
Reduce the Consequences and Penalties for Missing a Tax Deadline
The sooner you take action after missing a tax deadline, the better off you will be. While everyone has a different reason for missing the deadline, there are a number of common situations and tips for reducing the consequences or penalties:
- Forgot to file or loss track of time: Many people just get busy and forget their taxes are due or the date is here before they know it! Take time out and get your taxes completed as soon as you realize you missed the deadline.
- Don’t have cash to pay taxes owed: Don’t ever avoid filing your taxes because you can’t afford to pay – you’ll only make the amount you owe bigger. File your taxes on time (or as soon as you can) and then make arrangements to pay for them. You can often set up a payment plan or other arrangement with the IRS which will be less costly than waiting until you can come up with the money to pay it. Keep in mind that the penalties for not filing and not paying your taxes are 10x greater than the penalties if you file but don’t pay.
- Hoping not to pay taxes you owe: You can’t pretend you don’t owe taxes just to get out of paying them! The IRS will find out if you didn’t file just because you didn’t want to pay taxes. If they discover you didn’t file because you were hoping to avoid taxes, the penalties are increased to tax fraud, and you’ll end up paying a LOT more.
Can Tax Penalties Be Eliminated?
In some situations you can have IRS penalties eliminated if you show you should not be liable for them. If you have a reasonable explanation for missing the tax deadline or not paying the taxes you owe on time, the IRS will sometimes cancel penalties under a process called “Penalty Abatement”. Here are common situations in when penalties may be eliminated (many more situations apply as well):
- Death: If a family member dies, the IRS will often eliminate penalties associated with missing a tax deadline.
- Natural Disaster: If your documents or home are ruined in a natural disaster or created extreme hardships, the IRS will sometimes eliminate penalties associated with missing the tax deadline.
- Stranded or Absent: In some situations, you won’t be able to access your records to file a tax return – such as being in prison, hospital, rehab, or stranded in another country.
Each penalty abatement request is evaluated on a case by case basis. If the IRS feels you had a good reason for missing the deadline, they can remove penalties.