If you have some unfiled tax returns, it will definitely serve your best not to forget this in future. This is because there are consequences if you fail to do so. Therefore, if you have not filed your taxes, it is something you need to do right away. The longer you wait, the worse the situation becomes for you. Even though you may feel that the tax returns that you are yet to file are a burden, you can rectify this problem as long as you understand the legal framework, process and steps that should be taken.
How Does the Process Work?
Normally, the IRS will peg a non-filer on you if you fail to file your taxes for 12 months or more. This is a condition which you could do without. In essence, IRS has a system that shows all the people who are yet to file their returns. This they do by matching 1099s and W-2s through their computer system known as the Returns Program. Therefore, even though you may not hear from the IRS within that period, at one point or another, it will come to their attention that you are yet to file and they will start sending you notices. This is the beginning of all your problems.
What Are Some of the Consequences of Failing to File?
1. Fines and Criminal Charges. Although criminal charges are rare, they can be brought up against you if you owe the IRS money and you have not filed your tax returns. When you do not comply, the IRS is going to enforce the law. The fines can go to as high as $25,000 per year for every single year in which you failed to file. Depending on the severity of the case, the court can sentence you to some jail term.
2. Penalties. If you owe taxes, your tax debt is going to grow and in the end, you will owe more than the original amount due to the failure to file your taxes. Normally, failure to file penalty could accrue on any unpaid amount at a rate of about 5% per month.
3. The IRS is going to file a return for you. This is not half as great as it sounds. When the IRS decides to files on your behalf (this is also known as a substitute return), you might miss out on several important deductions and credits. Therefore, in this case, it means that you could end up owing the IRS more money.
Steps or Guidelines to Follow
If you see that you are not in a position to file your tax returns by April 15th, it is prudent to request for an extension from the IRS. This is done by filling form 4868. This form is going to give you up to October 15th to file (not to make payment).
In situations when you are yet to file old taxes and are not sure of your position and how to go on, it is important to get in touch with a qualified tax professional. Click here for more information on unfiled tax returns.