YOU have not filed your income tax returns for the current year and previous years because: 1) you decided you are not required to file? 2) You are a victim of identity theft and therefore excused? 3) You know you will owe taxes and you will have to pay when you file, decided not to file; 4) You were out of the country and you forgot to file? 5) Any other excuses.
If you are unsure if you are required to file, go to the IRS website and read on Publication 17 or ask your tax professional. If you owe taxes on your tax return and cannot pay in full, you can establish payment agreement with the IRS if you are required to file and owe a balance.
Here are the reasons why you should file. What happens if you do not file by the due date and you are required to file?
• Unless there is reasonable cause and not willful neglect, you are subject to failure to file penalty of 5% of tax owed of each month up to a maximum of 25% with minimum penalty of $210 if more than 60-days late filing.
• There is also failure to pay penalty of 0.5% of each month up to 25% of unpaid tax owed from due date until fully paid.
• Interest is assessed from the original filing date on taxes not paid by due date.
• File your income tax returns before the extension ends. If you don’t the IRS will file a return for you and accrues taxes based on their records. You will receive a bill based on their calculation.
• If you are due a refund, there is no penalty for failure to file BUT you could lose your refund.
• There is a statute of limitation in claiming for refund even you did not file your income tax returns.
• Refund Statute: You have to file your income tax returns within 3 years from the due date to claim the refund either issuance of check or application of overpayment to subsequent year/s tax liabilities.
• If you have not filed your income tax returns for Tax Years 2012 and prior, and you are due with a refund, you will have to say bye-bye to those tax years’ refunds since it is already beyond the refund statute.
• Filing after Refund Statute: You lose the refund and can no longer receive a check nor apply the overpayment to your future tax liabilities.
• There is no statute of limitation if you fail to file your income tax returns. This only means that the IRS can still audit and collect taxes for all years you did not file your income tax returns. It will be a nightmare!
• Consider filing Form 1127 Application for Extension of Time for Payment of Tax Due to Undue Hardship. Meaning it will be inconvenient and you will suffer financial loss if you pay in full. You will be required to attach: 1) statement of your assets and liabilities, and 2) an itemized list of your income and expenses for each of the 3- months prior to the due date of the tax. If you are not sure ask your tax professional.
• Do not ignore your tax bill it could just be an error. It is important that you review and if there is an error, write to the IRS office using the address on the notice within the time allowed.
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Disclaimer: Any accounting, business or tax advice contained in this communication is neither intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.
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Al-os & Associates Accountancy Corporation provides accounting and tax services to individuals, corporations, LLCs and business entities. The Firm has a niche in defending taxpayers audited by the IRS and other governmental agencies.