Penalty for Not Filing Taxes

Penalty for Not Filing Taxes

If you think you can successfully evade taxes for one reason or the other, you are mistaken. The Internal Revenue Service (IRS) keeps track, and if not now, then later, you are definitely going to be charged and have to face a penalty for not filing income tax returns. Even if someone else you know has succeeded in evading income tax and the consequent penalties, the general advice is to do as the laws require you to do, rather than be inspired by someone else’s ‘accomplishment’ in this area. In fact, there are even popular books on how to avoid paying taxes. However, the cost of not paying taxes is higher than filing and paying taxes itself.

What Happens When You Don’t File Taxes
There are many reasons why you may not have filed your taxes as yet. Perhaps, you aren’t aware of the right procedure or do not have the right resources to help you. These reasons however can’t be helped, because the failure to file taxes leads to several penalties that are worse than the total tax amount itself. Those of you who don’t file income tax returns may be slapped with heavy penalties, that include fines, criminal penalties, civil penalties, and imprisonment.

  • Failure-to-File Penalty
    Those of you who miss the deadline of April 15, and do not request an extension for the deadline may have to pay the failure-to-file penalty, as per the norms of the IRS. This means, you have to pay a penalty of 5% per month, of the total amount due, that may go up to a maximum of 25%. This is over and above the amount you already owe as income tax. If you file the tax returns after 60 days, you will be liable to pay a minimum of US$ 135, or the due amount, whichever is less.
  • Failure to File Due to Fraud
    If you have failed to file returns with an intention of fraud, you are likely to face a heavier penalty than the one mentioned above. The penalty will now be 15% a month, that can increase up to 75% of the total taxes due. Though it is rare, it is a possible circumstance.
  • Tax Lien
    If you have failed to file and pay your taxes, the IRS first assesses the situation, and sends you a notice demanding payment of the full tax amount within a period of ten days. Failure to do so will give the IRS a reason to file tax liens against you, and a legal claim to your property as security, until you are able to pay the entire tax amount.
  • Substitute Return
    This penalty will lead the IRS to file a substitute tax return against you. This means, the tax exemptions you were entitled to if you filed your returns on time, will now not be considered, so the total tax amount due will be higher.

Ultimately, if you think you don’t have enough funds to pay taxes, file your income tax returns anyway, to avoid the penalty thereafter. In fact, the penalty for not filing taxes on time is definitely going to be lower than the penalty for not filing them at all. If you consult with the IRS, you may be given the option of paying taxes in installments.

Another option they may give you is a temporary delay on the payment of taxes, after issuing a tax lien. Lastly, you may qualify for an offer of compromise, where they may reduce the total tax amount due after sufficiently assessing your situation. If you have a ‘reasonable cause’ for not filing taxes on time, you may be excused from the penalties upon a detailed assessment.