Everything that involves money or taxes will have its own amount of consequences. The same can be said about unfiled tax returns; in fact, this has the most penalties of all. The first consequence with unfiled returns are penalties that take money from you.
Failure to file tax returns means a loss of income and a rise in the amount of taxes you pay. The percentage penalty can grow up to twenty-five percent of the tax that is due. Those who owe money on their taxes must pay what is due.
The IRS wants any and all taxes that you owe to be paid as quickly as possible and returns to be filed. Sometimes an extension request might push the deadline back a little. But even with an extension, it doesn’t delay what comes next. Unfortunately, at some point, we all have to face the music.
Loss of Refund and Other Tax Benefits
When you have a refund coming your way, there isn’t really a penalty for not filing your returns on time. However, no one can afford to put it off forever. A three-year statute of limitations on filing returns stands in order to claim a refund.
We should all be extremely careful when not filing our returns on time, as any refund might be forfeited. This three-year limit also applies if you’re planning to claim a tax credit. These types of credits may even include our earned income taxes.
You cannot claim any credit in later tax years, which is why if you don’t file your returns, you will lose out. Penalties for unfiled tax returns Canada also applies to you if you are self-employed. By not filing your returns, you will not get any credit towards your disability benefits. Do not forget this includes your SSR.
Sometimes the IRS may decide to file a substitute return for you. Although it may seem easier to let the IRS do all the hard work, it could end with you paying more. When this happens, you only get one exemption, and a standard deduction will be applied.
Having a substitute return filed for you may result in a large number of expenses. These expenses will be deducted from you. Yes, even if you have any dependents or if you qualify for any tax credits, none of it will count for you. We all need to be careful when this happens because our tax liability could be overstated.
The IRS will send out a Notice of Deficiency once the substitute return is complete. We will then have 90 days to file a petition with the Tax Court or to submit your return. Not doing either of these things will just end with you being on the IRS’s chopping block.
You will owe whatever amount they determine is right. Do not forget about all the other types of interest and penalties you’ve built up in the meantime.
Tax levies mean the total seizure of all your assets. Normally, these levies tend to take the form of a wage or bank account. Although things like your home or vehicles may also be seized. In the case of a bank or wage account, certain amounts of money are exempt.
This can include SSI or disability benefits and even child support payments. Having certain tax credits exempt from any levies is a great advantage to all of us.
Even though this is usually a civil matter, the IRS has the ability to turn it into a criminal case. This is especially true if they believe you purposely tried to avoid paying. Failure to file tax returns is usually a misdemeanor.
This usually has a minimum punishment of 25,000 dollars and up to one year in jail. However, a more severe penalty may result in up to five years in prison.
A tax lien is the government’s claim to your property and is usually placed on you if you fail to pay your taxes. Unfortunately, the only way to get rid of the lien is to pay off your tax or sell the property. If you decide to sell the property, any proceeds are paid to the lienholder.
We should be extra careful as having a lien against us also damages our credit. Damaged credit could make it difficult to apply for any new loans.
To Sum It Up
In some states and countries, having unfiled or unpaid tax returns could result in you spending a lot of time in jail. Jail time is one of the worst penalties that you may experience when dealing with tax violations. It is definitely best to just file your tax returns.
As you can see, waiting to file returns only makes cleaning up the mess a lot more difficult. The longer you wait, the more serious the consequences could become. When faced with these consequences, you need to know what to do.