So the tax deadline for this year has come and gone. You didn’t file your federal tax return. You didn’t file an extension.
So now what do you do?
I asked some certified accountants what they would recommend. Their answers may surprise you. Or may encourage you, if you find yourself in this scary and uncomfortable situation.
CPA W. Bradley Cooper referred me straight to the source for his answer: the IRS’s own article on this topic:
Ralph Bressler of Cypress Financial Operation LLC had some common sense advice as well as words of warning.
The best advice that I could give is to “just bite the bullet” and file the return. You could be subject to a late filing penalty (in addition to the tax) of 5% of the unpaid taxes per month up to 25%. If you are later than 60 days, you may have a minimum amount of penalty due (in addition to the tax). You could also be charged interest on the unpaid amount, but the interest rate is quite low.
Finally, the IRS will not impose the penalty if there is reasonable cause and not willful neglect. You do not want to get on the bad side of the IRS. They have seizure powers and other ways to get their money if you just ignore them.”Ralph Bressler
What if you’re even further behind than simply the most recent tax return? Does the advice change at all if you are multiple years behind? Ike Lichtenstein, CPA and Managing Member at Accounting For Profitability, addresses this scenario specifically.
I haven’t filed a tax return in a long time – maybe four or five years. How bad is that?
It depends on your situation. Let’s start with the worst-case scenario.
If you owed taxes for the years you haven’t filed, the IRS has not forgotten. For each return that is more than 60 days past its due date, they will assess a $135 minimum failure to file penalty. The failure to file penalty, also known as the delinquency penalty, runs at a severe rate of 5% up to a maximum rate of 25% per month (or partial month) of lateness. In addition, you will be classified as a “habitual non-filer” by the IRS a status not desirable. However, if you “come clean” on your own the IRS will look more favorably on your situation.
If you were due a refund and hadn’t filed, there’s good news and some bad news. Bad news: for any year more than three years overdue, you can file a tax return but not claim the refund. Good news: most of the penalty if not all is based on tax due so getting your taxes in is the smart thing to do. If the IRS assesses a penalty many times your tax professional can get the penalties reduced or abated completely especially if this is the first time you have not filed on time.
Still have questions contact a tax professional who will walk you through the process. Don’t delay it will only get worse!!Ike Lichtenstein
It seems pretty clear: taking action right away is the best course of action should you find yourself behind on your taxes. Evidence of intent appears to mean a lot to the IRS; in the absence of that, it leaves them to assume you are evading your taxes – and that if course is a crime with a fairly severe punishment.
If you’re in this situation, contact a local tax professional to determine your next steps.