Are You Behind on Filing Your Tax Returns?
Taxes aren’t a suggestion. IRS has identified taxpayers who fail to file income tax returns and effectively stop paying income tax as a serious threat to tax administration and the American economy.
Their role in combating the area of IRS non-filing is that of outreach, education, and enforcement of the tax laws to reduce the number of unfiled tax returns.
The IRS uses information returns from employers, companies, and certain agencies to determine whether taxpayers owe any taxes.
What If I Have Unfiled Tax Returns?
Failing to file a tax return when you owe taxes can land you in hot water with the IRS, as it is illegal. On top of the threat of legal action, the IRS can and will fine you for your tardiness.
The minimum penalty for failing to file within 60 days of the due date $210 or 100 percent of your unpaid taxes, whichever is less. The failure-to-file penalty grows every month at a set rate, which changes as per tax law. In 2020, the rate is 5% of your tax debt per month, maxing out at 25% of your total tax debt.
If you fail to file your tax returns for several years in a row, it may be interesting to know that the IRS could have been filing returns for you. That means you do have a tax debt that continues to accrue interest over the years, and because you haven’t been doing your taxes, the IRS simply takes the income it assumes you’ve earned and doesn’t apply any eligible deductions.
Furthermore, if you haven’t ever sent in an income tax return, it’s important to note that there is no statute of limitations for how far back the IRS can audit you.
When it’s clear that you owe substantial taxes and have unfiled tax returns, the IRS will likely investigate your account. It is to those individuals, who deliberately fail to comply with their obligation to file required tax returns and pay any taxes due and owing, that IRS Criminal Investigation devotes its investigative resources. In the most egregious cases, criminal prosecution is recommended to the United States Attorney’s office.
What About State Income Taxes?
Most states in the United States require that taxpayers file state income taxes, separately from their federal tax returns. While the IRS has its system for penalizing and investigating late tax returns, states also legally require their citizens to file taxes on time – and failing to do so can get very costly. Penalties usually mirror those imposed by the IRS, with minor variations from state to state. States are typically also more aggressive in their collection tactics.
State tax problems can occur if you have unfiled tax returns in the state which you reside. States can prosecute taxpayers for failing to file, particularly if they believe that your failure to file your income taxes is due to criminal activity. Alternatively, your penalties and fees will continue to accrue until the state government decides to apply liens and levies (garnishing wages and claiming property), just like the IRS, to cover your state tax liability. Other penalties include applying restrictions to your professional licenses, revoking certain registrations, and more.
Note that not all states have income taxes. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming have no income tax, and both New Hampshire and Tennessee do not tax wages. If you live in one of the other 41 states, however, you must file your state income tax return or face penalties.
What If I Start Filing Taxes Now?
If you have unfiled tax returns, you need professional help. Simply filing a tax return out of the blue after years of avoiding your taxes won’t fly. If any of your income has been reported over the years via an employer’s Form W2 or Form 1099 returns, the IRS likely has an extensive transcript of your estimated taxes and automated returns.
They will ask you to file your late returns, so you may have to cooperate with both the IRS and your employers to file all relevant returns and tally up your total tax debt. To avoid criminal charges and/or to add to the civil charges, it is important to file your tax return even if it is late or you cannot pay the taxes owed, and it’s especially important to file them accurately, which will require professional help.
Rush Tax Resolution can assist you in organizing your tax documents and getting you back in compliance with the law when it comes to an IRS non-filing letter. Our job is to work with you and the IRS to minimize your penalties. It is a complicated process, and you need someone on your side that has the expertise to find the way through the clutter and be an advocate for you.
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