Delinquent Tax Returns: Repercussions With The IRS
When Benjamin Franklin sat down and said “Nothing is certain except for death and taxes,” he must have had an idea about the consequences of not filing tax returns!
Delinquent tax returns can be a source of misery for you and your business and it doesn’t matter if you owed the state or federal government nil returns or a little amount. The consequences can be costly and long-lasting, even if you failed to file them willingly or because you were unable to. This is because, not filing one’s returns is a crime.
The IRS and state governments possess powerful tools that easily identify tax delinquent persons and are able to trace them. Unfortunately, as much as 5% of the entire population in the US fall into this problem. It’s never a good experience to fall into this category.
What consequences are you likely to be slapped with as a result of delinquent tax returns?
If you belong here, then you most definitely are in hot soup. Like an eagle closing in on its prey, the IRS will track you down and that’s when you’ll understand why this famous collection agency in the planet is no good news.
Of course, you’ll be penalized if you fail to submit your federal tax returns. A failure-to-file penalty could be applied on your monthly salary whereby the taxman will be entitled to between 5% and 25% of it. Usually, someone who files them within 60 days after the deadline will have to pay a penalty of between 100% and 205% of the taxes owed. Even if it’s a nil return, you’ll not be off the hook!
The IRS will cancel your refund because you didn’t honor your civil right to file returns. You’ll have three years to submit your income tax returns and cleanse your name or lose your chance to ask for a refund forever.
You will potentially lose your tax credit
You will easily claim your Earned Income Tax Credit (EITC) if you diligently file your tax returns. However, failing to file your returns means you forego this credit.
Remember, IRS never forgives, and no losses can be carried
If your investment registered a loss, the IRS would ask you to carry forward the losses to clear all your future earnings’ returns. But this is subject to you filing the returns during the year when you made the loss.
Sometimes, the IRS handles your tax delinquency by automatically completing a substitute federal return (SFR) for your past due taxes on your behalf. The return is done based on the information contained in W2s, 1099s or any other document submitted by your employer, bank, etc. This, however, only applies when you have no dependents. In an instance that you qualify for multiple exemptions, have several dependents or list down rather than claiming your deduction, the IRS will slap you with a bigger tax liability.
You will qualify for it if you’ve been up-to-date on your tax returns. In most cases, those who get to be declared bankrupt after filing for Chapter 7 and Chapter 13 bankruptcy must have dutifully filed their previous two returns.
Though it’s rare, getting jailed because of unfiled taxes is possible. Under the federal law, you could be prosecuted and spend up to a year behind bars and pay fines of up to $25,000. Usually, incarceration is as a result of fraud like purposefully evading tax.
What about the forceful collection?
- Tax Liens – the IRS will file a “Notice of a Public Tax Lien” and the total amount you owe them will appear on your credit report.
- Wage Garnishment – they will contact your employer and request that your wages are withheld and instead redirected to pay your tax debt.
- Bank Levies – they may even ask the bank you do transact with and levy your account.
- In extreme cases, they’ll hire a 3rd Party Debt Collector.
To avoid all these unnecessary hassles, file your returns with a professional tax prep service and hire a good accountant to manage your finances day in and day out.
TOLF Accounting & Tax Queens 147-17 Union Turnpike #3A Flushing, NY 11367 (718) 591-1000 tolfaccountingny.com
The TOLF team are the long standing experts in the Flushing, NY area for anything relating to tax preparation & accounting. We have been assisting individuals, corporations, partnerships for over a decade. A quick look online will reveal that we are one of the highest rated financial establishments in Queens, NY. Call now for a fast & free consultation.