It’s not too late to file! We frequently file old tax years. Many people ask what happens if they miss a year of filing a tax return. It’s a good question and the answer depends on a few variables. If you are below the filing requirements, meaning you didn’t make enough to have to file a return, nothing will happen. A lot of retired people fit into that category, or these days many people who haven’t worked (or minimally worked) will also fit into that category.
On the far side of that, what if you made a LOT of money and didn’t file. The consequences may depend on your reason. Let’s say you had a great year in business and for the first time you made a million dollars and your income is usually low (or say you won the lotto). If the IRS determines that you chose to not file for the purpose of not paying, they may very well pursue you criminally or under civil law.
The guidelines that the IRS uses are set by statute. The maximum penalty for not filing is one year of jail for each tax year not filed. On the other hand, the guidelines are different if there is intent not to pay, such as in the example above. If the purpose of not filing the tax return is for the purpose of not paying taxes, the IRS criminal investigation division may show up and then the jail time is a lot more, depending on how much in taxes you were trying to avoid and the number of years involved.
However, generally speaking, most people fall somewhere in between. Let’s say that you just missed the filing of the return and now you are trying to get back into the system. There is still risk, however the penalties are mostly determined in financial terms. The penalty for a late filed return is 5% per month of the balance that was due up to 25% of the taxes. In addition, the IRS can charge ½ a percent per month for late paying of the tax (this is included in the first 5 months of 5% penalty for late filing). Don’t forget, in ADDITION to the penalties, the IRS charges interest on the balance due as well. The interest rate that is charged changes quarterly based on the fluctuating federal rates. This interest compounds DAILY!
If you have unfiled tax returns, it’s best to get back into the system voluntarily and DON’T wait until the IRS contacts you. Sometimes there are good reasons for your inability to file the taxes, and you may be able to request that some of the penalties be abated (waived and removed), but if the IRS had to track you down and force you to file… then the chances of getting any abatement is very unlikely!
Another odd twist to unfiled tax returns is that the IRS can FILE THE RETURNS for you. What they do is take the information they have on you (based on W-2s, 1099s, etc.) and guess what you owe them… based on a worst case scenario! Then they send a notice to the last address they have on file and even if you don’t get the notice due to moving, the return the IRS prepared for you becomes a legally enforceable balance due! This is very tough because not only does the IRS use numbers that may be much higher than what would actually be due, many times people don’t even know about it until they get a bank levy or wage garnishment! What a bummer to find out that you owe the IRS money when you get a notice from your bank stating all your money is gone and you are bouncing checks all over town!!! Or even worse, to find out that the IRS has put your employer on notice that you are being garnished. Now the IRS gets most of your paycheck and you can’t even pay your normal monthly bills!
We help people protest these kinds of IRS filed tax returns all the time. However, it’s cheaper and better to just file on your own and not wait until the IRS surprises you with a large balance due and possible collection activities!
We’ve helped a lot of people get back into the system and we have the tax programs for all the years you may need to file. We work on this kind of project all the time. We would love to help you if you need some assistance!