While it is mandatory for people earning above the specified limit to file tax returns yearly, more than 125,000 people in the US, many of whom are from Kentucky, did not file their tax returns between 2017 and 2021. Not filing your tax return is a misdemeanor, punishable by jail or probation with a fine.
So, if you want to avoid facing penalties for failing to file a tax return, seeking help from a professional tax advisor in Louisville, KY, can offer the perfect solution.
Filing your tax returns beyond the deadline
You can still file your taxes even if you fail to do so within the deadline stipulated by the IRS. However, doing so will have its risks.
Failure-To-File Penalty
- Not filing tax returns will attract a failure-to-file penalty.
- The penalty is assessed based on unpaid tax amount and length of delay in payment.
- Unpaid tax is the balance between your tax balance minus the payments you made, if any.
- The failure-to-file penalty can be 5% of the unpaid tax balance for the entire or partial month, subject to a maximum of 25% of the unpaid tax amount.
- Interest is chargeable on penalty.
Failure-To-Pay Penalty
- Failure-to-pay penalty becomes applicable when you have filed the tax return but failed to pay the reported tax amount by the due date.
- The penalty is 0.5% of your unpaid taxes each month or part thereof, up to a maximum of 25%.
- The penalty also attracts interest.
- If you are bound to pay a failure-to-file penalty and a failure-to-pay, the IRS imposes a combined penalty of 5%.
Substitute tax return
- The IRS may file a “substitute for return” if you fail to file a tax return.
- The IRS may use third-party income, such as a 1099 or W-2 tax form, to pay your taxes.
- It won’t include deductions or credits you might have been entitled to.
- You can move to the US tax court to submit due returns within 90 days of the IRS filing for a substitute for return.
Exploring your options in case of financial inability to pay taxes
You must still file a return even if you don’t have enough money to pay the taxes. You can contact the IRS and request one of the following payment options to pay your taxes:
- Request a short-term payment plan that could give you 180 days to pay unpaid taxes.
- Request an installment agreement allowing you to make monthly payments for an extended period.
- Request an “offer in compromise.” This agreement may reduce your tax debt burden by proposing an amount you can afford without hardship to the IRS. However, it is subject to acceptance by the agency.
- You can request a respite through “currently not collectible” status by establishing that you can’t afford living expenses and tax bills.
If you don’t owe tax, not filing a return will not have repercussions. However, submitting a tax return even when you do owe nothing may help you get easy loan approvals.
