What Are The Potential Penalties If You Dont File A Tax Return
To understand the depth and breadth of the financial trouble you could get into by ignoring your tax filing obligations, consider the following penalties.
- Failure to file a tax return. If you owe money to the CRA, you will endure a late filing penalty of 5% of your unpaid taxes, plus 1% a month for 12 months from the filing due date. Thats just for the first strike. If you fail to file on time again within a three-year period, that penalty goes up to 10% of unpaid taxes plus 2% per month for a maximum of 20 months.
- Gross negligence, false statements or omissions on your return. Turning a blind eye to your obligationsattracts a penalty of 50% of the tax owing. Add interest to that if you dont pay promptly.
- Tax evasion. This is a criminal offence that involves intentionally understating income or overstating expenses, or hiding assets in Canada or abroad. It attracts a penalty of up to 200% of the taxes evaded and, potentially, jail time of up to five years. Tax evaders are fingerprinted and have a criminal record. This can put a big damper on your travel plans, employment and business ventures.
Your Refund Has Been Delayed Lost Or Issued Incorrectly
If your return has been processed, there are a handful of reasons that your refund may not have arrived. If you opted for a paper check rather than direct deposit, its possible that your check got lost in the mail or stolen. If you were expecting your refund to show up in your bank account, its possible that the account information on your return was entered incorrectly.
Another unfortunate possibility is tax return preparer fraud this is when the individual you hired to do your taxes altered your return after you approved and signed it to redirect funds to a different account than the one you selected. This situation may be tricky to track down, but often the IRS will alert you to inconsistencies on your return. You may also request a transcript of your tax account to make sure it matches the return you signed.
A final possibility is that the IRS is holding onto your refund, either related to your claim for the EITC or ACTC or to offset debts, such as outstanding taxes or child support.
If You Cant Pay The Taxes Due On These Late Returns Set Up An Installment Agreement Or Settle With The Irs
The downside of filing a tax return is you may have to pay taxes you can’t afford. The IRS has payment plans and settlement opportunities for people in your position. Do you think you’re the first person that couldn’t afford to pay their taxes? The IRS has a long history of dealing with taxpayers that can’t pay and has developed solutions. These solutions include Offers in Compromise , Partial Payment Installment Agreement , or Currently Not Collectable status. In short, the IRS will work with you when you can’t afford to pay.
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First Determine Whether You Need To File Taxes
First things first: Do you even need to file a tax return? It’s worth it to take the time to find out. For reference, many Americans do not pay income tax in 2020, more than 60% of households did not, an increase from roughly 44% in 2019, in part due to pandemic-related issues. In short, not everyone needs to file a federal tax return.
It mostly comes down to your filing status, and how much money income you earned over the course of the year, and it’s on you to figure it all out.
“The tax system is one of self-appraisal,” says David Beck, a Dix Hills, NY-based CPA. “The government relies on you to tell the truth, to pay your taxes, and file a return.” And those taxes need to be paid, and a return filed, by the tax deadline which is April 15, during most years.
So, how do you know if you need to file a tax return? There are a lot of things to take into consideration, so it may be best to consult a professional before you decide to stand pat. Here are some general guidelines to help you make the determination:
Quick tip: If your adjusted gross income was less than $72,000 during 2020, you can use the IRS Free File program to prepare and file a federal tax return for no cost. Roughly 70% of Americans are eligible to use this free, government-provided program.
If You Can’t Find Some Documents
“Fortunately, some documents can be obtained from the IRS, such as W-2s and 1099s,” Griffin says. “They can be acquired from the wage and income transcript. However, as far as expenses are concerned, those would have to be recreated from bank statements or receipts.”
The important thing is to gather as many documents as you can, then meet with a tax professional to sort through everything. “If you don’t know if you should bring it, bring it anyway,” Griffin advises.
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Your Return Hasnt Been Processed
The IRS has been behind on processing returns for the entire tax season, but there are a few situations causing additional delays for some taxpayers:
- You mailed your return instead of filing electronically.
- Your return has errors like an incorrect Recovery Rebate Credit.
- Your return is incomplete.
- You filed a claim for the Earned Income Tax Credit or Additional Child Tax Credit .
- You submitted Form 8379, Injured Spouse Allocation.
- You are a victim of identity theft or fraud.
- Your return needs additional IRS review.
If the IRS contacts you requesting clarification or more information, responding in a timely manner may help move your return along.
Do I Have To File Taxes
This depends on several factors including your income type. From self-employment, through an employer or investments) and amount, tax filing status, age, and other factors.
Generally, not everyone needs to file a tax return each year. In fact, you wont need to file a tax return unless your total income exceeds certain thresholds, or you meet specific filing requirements.
Typically, if your income is less than the standard deduction, you don’t need to file a tax return. However, even if this is the case, you may still need to file a tax return if you meet certain conditions. You won’t need to file a tax return if all of the following are true for your situation:
- Youre under age 65
- Earn less than the 2021 standard deduction for your filing status
- Don’t have any special circumstances that require you to file
- Dont have unearned income of more than $1,100 for 2021 as a child or other dependent
If you dont meet all of these conditions, you may need to file a tax return. However, in the event you dont meet all of these conditions, you may still want to file a tax return anyway. If you earned income during the year and had taxes withheld from your pay, to get any excess youre owed back via a refund, youll need to file a tax refund.
The IRS doesnt automatically issue refunds if youve overpaid your tax bill each year. In that case, you want to file a tax return to claim any tax refund you may be entitled to claim.
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The Statute Of Limitations For A Refund
If you believe you may have a refund, then you will need to file your tax return within three years of the original filing deadline. If you file your tax return after this three-year deadline, your refund will expire. Outside of this three-year limit, the IRS cannot issue a refund to you, apply the refund to your outstanding balancing or apply the refund to a future estimated payment.
Few events are more stressful than opening your mailbox and finding a tax collection letter. The last thing you want to do in this situation is ignore the letters you receive from the IRS. If you receive a letter in which the IRS threatens enforcement actions like wage garnishment or asset seizure, now is the time to contact a tax professional.
What To Do If You Cant Afford To Pay Taxes
If you cant afford to pay your taxes, you will want to contact the IRS and inform them of this. The agency is more interested in collecting what it can than penalizing you, and is likely to work with you to set up a payment plan or an installment agreement. Payment plans still carry some interest and penalties, but less than the penalties for those who are not paying. However, failing to make a payment may result in the government requesting the full amount and ending the installment plan.
If you inform the IRS that you cannot pay, it is also open to negotiating a smaller payment. Oftentimes, the IRS will lessen your overall tax burden if you are willing to pay in a lump sum.
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Find Out The Consequences And Your Options If You Fail To File A Tax Return
By Stephen Fishman, J.D.
What should you do if you “forget” to file your tax return with the IRS? And, even more important, what will the IRS do to you?
If you fail to file a tax return or contact the IRS, you are subject to the following:
You should file your return as soon as possible and pay all the tax that is due, if any. You’ll save money by doing so because the IRS late penalty and interest charges are calculated from the date your return was due , so the earlier you file, the less you pay.
If you can’t afford to pay all the tax that is due, you should still file and pay as much as you can. By paying as much as possible now, the amount of interest and penalties you’ll owe will be lessened.
You can enter into an installment agreement with the IRS. This is an agreement between you and the IRS to pay the amount due in monthly installment payments. You must first file all required returns and be current with estimated tax payments. If you owe $25,000 or less in combined tax, penalties and interest, you can request an installment agreement using the Online Payment Agreement application at www.irs.gov.
Get Your Transcripts From The Irs
The IRS retains tax transcripts for every year you were earning income, as long as the person paying you reported that income. To find out what the IRS believes you owe, you can request a transcript from them. There are five types:
Tax return transcript â Shows which types of tax returns you’ve filed, if any. Lenders may ask to see this when extending you a mortgage or loan.
Tax account transcript â Shows data about you, such as whether you file your taxes as an individual or jointly file with your spouse.
Record of account transcript â A combination of the tax return transcript and tax account transcript.
Wage and income transcript â Shows what the IRS knows about your income and how much you’ve paid in estimated tax.
Verification of non-filing letter â Proof that the IRS did not receive your individual tax return.
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Penalty Relief Under The Voluntary Disclosure Program
The Voluntary Disclosure Program allows an individual to come forward and correct their previously incorrect filed return by replacing it with correct information, without facing the penalties or interest that would otherwise apply.
The amount of penalty relief depends on which program you will be processed in. For the GST/HST wash transactions and the General Program, there is 100% penalty relief. For the Limited program, there is no gross negligence penalty but other penalties will apply. Penalty relief will only apply to penalties that apply within 10 years before the reporting period in which the VDP application was filed.
Track One: GST/HST Wash Transactions: 100% Penalty Relief
Track Two: General Program: 100% Penalty Relief
Track Three: Limited Program: No gross negligence penalties, but other penalties will apply.
Better To File Now Even If You Cant Pay
Some people avoid filing taxes because they cant afford to pay the tax bill. However, you should always file on time, even if you cant pay all of the taxes due. If you wait, youll be faced with a late filing penalty which is just one more thing youll have to pay. The failure-to-file penalty is 5 percent per month based on the amount of tax you owe.
If you are unable to pay your tax bill quickly, the IRS has payment installment plans. Approval of an installment plan is automatic if you owe $25,000 or less, can prove you cannot pay the total amount you owe at the time its due, and are able to pay off the tax in three years or less. In addition, you or your spouse cant have had an installment agreement with the IRS in the past five years.
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How To Check Your Return And Refund Status
The only way to track your return and refund is to use the Wheres My Refund? tool on IRS.gov. You can call the IRS Tax Help Line at 800-829-1040, but if your return is active on Wheres My Refund? you are unlikely to get any additional details not provided online.
Your return status should appear within 24 hours of filing your electronic return or within four weeks of mailing your paper return. A status of received indicates that the IRS has your return for processing, and a status of approved means that the IRS has approved your refund. You will also see when the funds are expected to be distributed, and the status will change to sent when your refund is on its way.
If You Need More Time To File
If you are aware that you need to file a return, and simply need more time to do it, you can always file for an extension. It’s pretty straightforward: You will need to submit Form 4868 to the IRS, either online, or by mail by the filing deadline.
But remember that if you think that you’ll end up owing the government money, you’ll need to send the IRS a payment by the tax deadline regardless of whether you file an extension. You’ll need to make an estimation of your liability when you submit your extension. If you don’t think you can pay the full amount due, don’t let that stop you from filing your return on time. You can file your return even if you cannot pay the full amount due and request an installment agreement. If you think you’re getting a refund, though, there’s no need to pay, just fill out and submit the extension form.
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What Happens If You Dont File Your Taxes With The Cra
The CRA has the mandate to impose severe penalties on non-filers and late filers of tax returns. If you want to reduce your taxes, create tax-free income through your TFSA and invest in Canadian Utilities stock.
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Canadians, with or without tax payables, must still file their tax returns. The Canada Revenue Agency didnt announce an extension like last year, so individual taxpayers must comply with the April 30, 2021, deadline for the 2020 income year.
Every taxpayer in Canada must file their tax returns every year. Some taxpayers fall behind filing tax returns for various reasons. While non-filing and late filing are different situations, both carry severe consequences. Moreover, correct the notion that tax will go away by itself if you dont file at all.
Do I Need To File A Tax Return
You may not have to file a federal income tax return if your income is below a certain amount. But, you must file a tax return to claim a refundable tax credit or a refund for withheld income tax. Find out if you have to file a tax return.
If you find out you need to file a tax return, learn how the process works, when your return is due, and more.
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Falling Behind On Your Taxes Creates Unnecessary Stress
Getting behind on any bill is stressful. Falling behind on filing your tax return and paying your tax bill can feel even worse. Fortunately, its stress you can avoid.
With TaxAct, you can file your return before its due and feel confident the program has helped you find all possible deductions and tax benefits. And later, if you believe you may have missed something, you can always amend your return. Just remember youre better off filing before the deadline so you can avoid paying penalties and interest that may come with filing late.
Talk To A Tax Attorney
Need a lawyer? Start here.
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