When Secretary of the Treasury Steven Mnuchin announced that the tax filing date would be postponed until July 15th, millions of Americans breathed a sign of relief. With the unparalleled short-term economic disruption the country faces, a delay in the filing date could make the difference between making rent or mortgage payments and going into arrears for countless households.
What are the benefits of filing and paying my taxes on time?
The stimulus package’s financial payments to American taxpayers should soften the blow, but it also illustrates the importance of filing your taxes, even if you can’t afford to pay. The Treasury will base stimulus payments on taxpayers’ 2018 tax returns. In addition to ensuring eligibility for the aid, filing your tax returns also eliminates the pricey failure-to-file fees and interest. In most cases, not filing taxes and paying late only results in a larger tax bill in the end. Here’s why:
Failing to file is the worst move. The penalty stands at 5% of tax owed for each month the account is delinquent up to a 25% cap. In addition, the IRS charges interest on the outstanding balance.
Those who can’t afford to pay but file on time fair far better. They face a penalty of 0.5% of tax owed per month up to a 25% cap.
Substitute for Return
The IRS uses a substitute for return to create bills for delinquent taxpayers who fail to file their returns. A substitute for return is necessary because in absence of it, the IRS has no way to figure how much the taxpayer owes and the penalties due. Unfortunately for the delinquent taxpayer, the IRS only applies the minimum deductions. This results in a much higher tax bill and increased penalties and interest.
If the IRS files a substitute for return, the taxpayer should immediately file his or her own return with the maximum deductions applied.
Over time, important documents needed for filing an accurate return may be lost. These can include W2s, 1099s, expense receipts and other documents needed to maximize deductions. At the very minimum, lost records will delay filing and cause enormous inconvenience. At worst, key deduction could be overlooked, making the tax debt that much worse.
The Statute of Limitations is Very Long
The IRS has ten years from the date the tax return is filed to collect. For taxpayers who failed to file, the statute of limitations is determined by when the IRS decides to file a substitute for return. While the IRS may not immediately take action, the law is set up to make it virtually impossible for the IRS to run out of time to collect tax debt.
The Collection Process
When the IRS goes on the offensive, the situation gets real for taxpayers in arrears. The IRS will start by sending letters that demand payment of the amount the IRS determines you owe. When these communications arrive, it is vital for the taxpayer to analyze how the IRS came to its figure and submit evidence that contradicts that number if it is inflated.
When letters don’t get a response, the IRS gets tough.
Taxpayers who owe over $25,000 may get a visit from an IRS agent at their home or business. If the IRS is willing to put forth that much effort, they are serious about taking additional steps to collect if the visit doesn’t produce the desired result. An IRS visit can be particularly bad for businessowners. If customers or employees see the IRS sniffing around the business, they may lose confidence in the company’s future.
If the taxpayer reaches no agreement with the IRS, enforcement actions come next. These are the actions that have severe consequences for delinquent taxpayers. Often, the IRS will garnish wages. If you have real estate, the IRS can put a lien on it and potentially force a sale. The IRS can also go after vehicles, bank accounts and investments.
IRS enforcement actions have devastating impacts on households. Vital property, such as vehicles, can be taken. In many cases, delinquent taxpayers are forced the sell homes and businesses to pay large tax bills that include hefty penalties and interest. Filing and paying taxes on time is the only sure way to avoid IRS collection activity. If you can’t afford to pay, it is still better to file to avoid failure-to-file fees and take advantage of payment plan options.
File your Taxes Remotely
We provide efficient, cost-effective service with exceptional skills and experience to handle all needs. We offer a full complement of services from accounting services to business, Individual, financial and tax consulting, tax resolution and so much more. As tax specialists, our expertise and knowledge ensure compliance with government laws while maximizing benefits and minimizing tax liabilities. Call us today and speak with an experienced CPA for a Free Consultation!