Children would always think that being an adult is easy. But growing up means doing tasks you do not normally do. One of these includes filing your taxes before their due date. However, people would often forget to do this simple task because life gets in their way. So it is understandable to see many of them panicking the moment they realize they had failed to file their taxes.
Making such errors is common for several individuals and business owners. Although its consequences may be frustrating at times, there is no need to panic. In this article, we will look into the significance of filing your taxes and the possible consequences of not filing them on time. We will also give you some tips to ensure that you will no longer miss your next tax due date.
Why Should I File my Taxes on Time?
If there is one date that adults would always dread, then that would be every April 15, otherwise known as “tax day.” But have you ever wondered why you should be paying your taxes? Aside from being a civic duty and a law requirement, the government uses our taxes to fund its programs and projects.
Maintaining highways and renovating public buildings and parks rely on taxpayers’ money. Many state benefits also require you to submit a copy of your tax returns. For instance, applying for educational aid, filing for unemployment compensation and industrial insurance, and asking for Social Security retirement and disability benefits rely on your taxes.
What Can Happen if I Do Not File my Taxes on Time?
Forgetting to file your taxes is understandable and happens to many people. But when this happens, you would need to face possible penalties and charges. Thus, knowing the potential consequences you may face is essential for every taxpayer.
In the United States, the Internal Revenue Service (IRS) oversees these taxes and is responsible for imposing penalties and fees to late taxpayers. However, in extreme cases, they may also file civil and criminal charges against you. Below are some of the possible consequences you may face if you fail to file your taxes before their due date:
If you forget to file your taxes by April 15, the IRS will impose costly charges in the form of their failure-to-pay penalty. Generally, this would cost you 5% of your total tax bill. Aside from this, they will also charge you with interest for every month you fail to comply.
Remember that the longer you forget to pay your taxes, the larger these charges will be. For instance, failing to pay the IRS $2,500 three months after its due date would merit you an additional fee of $375. In some cases, your penalties may even reach as much as 25% or more than your original tax bill.
Lose Your Refund/Credit
If you are eligible for a refund from the IRS, you do not have to worry about their failure-to-pay penalty. However, that does not mean you will not face any consequences.
The IRS can withhold your refund if you fail to file your taxes on time. In addition to this, you also risk losing this money if you do not act on it immediately. Generally, they will give you around three years to claim your refund. This timeframe also applies to people who are eligible for an Earned Income Tax Credit.
Become Ineligible For State Benefits
Aside from losing your refund and being subject to their failure-to-pay penalty, the IRS can also prevent you from applying for Social Security retirement, disability benefits, and other state compensations in the future.
Have Trouble Applying For Loans
Since lending institutions and educational aid require you to submit a copy of your tax returns, you will have a much harder time getting your loans approved if you forget to file your taxes on time.
Substitute For Return Program And Collection Action
Lastly, expect to get tons of letters from the IRS if you fail to file your taxes voluntarily. When this occurs, you will be subject to their Substitute for Return Program and be ineligible for possible deductions, exemptions, and extensions to your tax bill.
Generally, they will give you around 90 days to act on their notice. So if you fail to file your taxes by then, they will proceed with their collection action by levying your bank account and wages. They can even go as far as filing a tax federation lien or criminal charges against you.
What are Some Reasonable Causes for Late Filing?
The IRS suggests that several law-abiding citizens forget to file their taxes on time because of natural calamities and personal issues. In such instances, they may waive or reduce your late-filing penalties as long as you provide enough documentation about your situation. However, this occurrence only happens under the following circumstances:
- Serious illness, incapacitation, or casualty of the taxpayer or an immediate family member
- Natural disasters or fire
- Inability to access tax records
What Should I Do?
Filing your taxes and paying them on time are two essential qualities of a good citizen. But even law-abiding taxpayers may forget to file their taxes before their due date. So if you are naturally a forgetful person, here are some tips you can do to avoid penalties and interest charges on your tax bill:
File Your Taxes as Early as Possible
People tend to prolong their taxes because they do not have enough money to pay their tax bills. However, experts recommend filing them as early as possible to avoid additional penalties and interests. In addition to this, the IRS will also allow you to pay your taxes in various ways. These payment options include the following:
- Credit card payment
- Cash payment
- Installment agreements
File For An Extension
Besides filing your taxes before their due date, you can also request a six-month-long extension from the IRS. Although this timeframe does not necessarily mean more time for you to pay your taxes, it wipes out possible late-filing penalties on your tax bill.