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4 Ways that Unfiled Tax Returns Can Haunt You

May 31, 2019

Got Unfiled Tax Returns Haunting You?

We’re not saying that the IRS operates like a scary movie villain, but they do know how to haunt people who don’t follow their rules.

Check for these five qualities to make sure your tax pro is qualified and the best for you.

Haven’t filed taxes in a year or two (or four or ten)? You’re not alone. While the majority of people pay their taxes on time, about 7 million taxpayers fail to file their taxes every year. If you’re in that 5% of taxpayers, you might be asking yourself, “What’s the worst that can happen if I haven’t filed my taxes for this past year or previous years?” Well, the consequences for unfiled tax returns aren’t pretty.

We’re not saying that the IRS operates like a scary movie villain, but they do know how to haunt people who don’t follow their rules and file on time. Their tactics range from disappearing tax refunds and credits to a not-so-pleasant surprise filed tax return on your behalf. The kind of haunting that the IRS will do isn’t so easily solved with burning sage or sprinkling some salt. Instead, this IRS haunting might be best solved by tax preparation help.

1. You Could Face Suspenseful Silence from the IRS About Your Unfiled Tax Returns.

Believe it or not, if you don’t file your taxes, it’s possible the IRS may not reach out to you immediately.

You’ve probably heard horror stories about notices piling up in your mailbox and IRS tax collectors knocking down your door. But you rarely hear about the even spookier outcome: that you don’t file, and the IRS seemingly doesn’t do anything in response.

In case the IRS hasn’t contacted you, don’t be quick to assume that this suspenseful silence means they haven’t noticed. It’s possible, especially if you’re self-employed and don’t have any W-2s or Form 1099s that get sent to the IRS.

However, it’s equally possible that the IRS doesn’t have your correct address. They could be mailing you notices left and right. But if they don’t have an updated address for you, you won’t get those notices. And unfortunately, that’s on you. It’s your responsibility to update the IRS on your current address.

2. Tax Refunds and Credits Can Disappear Before Your Eyes.

Say you didn’t file your tax return four years ago. If you had any tax refund due to you from that return, it’s long gone by now. See, if you’re due a refund for withholding or estimated taxes, there’s a statute of limitations that kicks in. If you don’t file your return within 3 years of the due date, you’ll lose that money that was rightfully yours.

Disappearing Tax Returns: Just one way your unfiled taxes can haunt you

The same goes for tax credits like the Earned Income Credit. In fact, the IRS can be even more stingy with tax credits. If tax credits can cause a refund on a previously unfiled tax return, the IRS is unlikely to give them to you in retrospect.

Why let the IRS keep money that is rightfully yours? By leaving your tax returns unfiled, you’re giving them the go-ahead to hold onto your hard-earned money.

3. You Can Struggle to Make Big, Life-Changing Purchases.

Think about those monumental purchases you may make in your life:

  • A brand-new car
  • A mortgage on the perfect house for your family
  • A loan to start your own business
  • Tuition to attend the college of you or your child’s dreams

One of the unexpected ways an unfiled tax return can haunt you is your sudden inability to make these big buys.

When you make purchases this big, you’re typically borrowing money. When you borrow money, financial institutions tend to require income verification to ensure you’ll be able to repay them. If you aren’t a W-2 employee, how will banks verify your income? You guessed it: using your tax returns.

Not having tax returns could indicate to lenders that they cannot trust you’ll be able to repay the loan. This isn’t to say you’ll be unable to buy a home or a car; just keep in mind that these processes will be much more difficult without tax returns.

Also, you’ll need your federal income tax returns to complete the Free Application for Federal Student Aid (FAFSA). Without this info to prove your financial need, you’ll be unable to apply for federal financial aid. Whether it’s for you or your child, this means you’ll miss out on helpful federal grants and subsidized student loans. And for similar reasons to those posed above with loans for cars and houses, you may find it difficult to take out private student loans as well.

4. The IRS Can Surprise You with a Twist Ending by Filing for You.

If you don’t submit a complete tax return, the IRS may do themselves a favor by filing a substitute.

Notice that we don’t say they do you a favor by filing your unfiled return. That’s because the substitute return they file on your behalf will not give you any of the credits, deductions, or exemptions you may have qualified for.

When the IRS files for you, it’s because they believe you owe them a tax debt. With a tax bill in play, the IRS has more to gain by filing for you.

Twist Ending: The IRS files for you and haunts you with a hefty tax bill

What This Twist Ending Looks Like

You’ll receive a Notice of Deficiency CP3219N, which will walk you through their substitute return. You’ll have 90 days to file the return in question or file a petition in Tax Court. If you don’t do anything in those 90 days, the IRS will go ahead with their return.

Once the IRS has hit you with that twist ending bill (plus any failure-to-file and failure-to-pay penalties they see fit to charge), you’ll then have to figure out how to pay your balances owed. Otherwise, you risk facing further IRS collection actions like levies and liens. Of course, you always have tax relief help options you can explore like an installment agreement or an IRS debt forgiveness program.

However, it’s still best for you to focus on filing your own tax return to try and take advantage of those deductions and exemptions the IRS may have glossed over in their substitute return. Once they have your filed return, the IRS usually will adjust your account accordingly.

Instead of ignoring unfiled taxes, take control of your life. When unfiled tax returns are haunting you, seek tax preparation experts to help to clear the air. With years of experience under their belt, tax professionals like ours can make sure your unfiled tax returns are filed correctly while maximizing deductions to minimize any potential tax bills.

What If You Forgot to File Taxes on Time?

April 18, 2019

Did you "otter-ly" forget to file your taxes before the deadline?

The sooner you file, the sooner you get your refund. And if you owe the IRS money, the sooner you file, the lower your tax bill.

Check for these five qualities to make sure your tax pro is qualified and the best for you.

Tax Day 2019 has come and gone. The deadline for filing your taxes was this past Monday, April 15 (unless you are a resident of Maine or Massachusetts, in which case your deadline was this past Wednesday, April 17). If you forgot to file or request an extension in time, you’re now officially late in filing your 2018 taxes. But what does that even mean? What happens if you forgot to file taxes on time? We’ll walk you through the consequences of not filing on time and what you can do about it.

If you forgot to file, you could face the pesky failure-to-file penalty.

The IRS may assess the failure-to-file penalty to any taxpayer who does not file by the deadline and who has an outstanding tax balance. The failure-to-file penalty is 5 percent of your unpaid taxes for each month your tax return is late (up to 25 percent). You’ll also get plenty of reminders from the IRS to file your taxes.

Think you can avoid this penalty by filing today? Unfortunately, it starts accruing the day after the deadline.

If you owe taxes, the IRS could hit you with extra penalties, interest, and worse.

Forgot to file taxes and have an outstanding tax bill? If you didn’t pay the IRS the full amount of taxes owed, you could be facing a failure-to-pay penalty. If you’ve got the failure-to-file and the failure-to-pay penalties running at the same time, they’ll cap at 5 percent of your unpaid taxes per month.

As far as penalties go though, this year you could be in luck. More people than ever are expected to have underpaid the IRS, thanks to the reform affecting 2018 taxes. To help combat this issue, the IRS has expanded their relief from their underpayment penalties.

If this isn’t your first year forgetting to file your taxes, your consequences could be a lot more severe. In addition to even more penalties, you could face wage garnishment and other levies. The IRS could even take you to court. Now luckily, the IRS won’t take those drastic actions without warning, but it’s still important to remember how serious the IRS can be.

Owe more than you can pay? There are always options like a payment plan or an offer in compromise that you could qualify for.

Say goodbye to your refund until you file.

Got money waiting for you in the form of a tax refund? The good news is that you won’t face the failure-to-file penalty.

The bad news: Unless you file your taxes within three years of the corresponding tax filing deadline, you can kiss that cash good-bye. In 2013, taxpayers who didn’t file left $1 billion in unclaimed federal income tax refunds on the table. And that’s generally cash that people worked hard for but ended up overpaying the government with.

If your choice is filing ASAP or losing money, you’ll want to choose filing every time.

The IRS will consider reasonable causes for not filing by the deadline.

If you’ve got a good reason for not filing your taxes on time, the IRS might hear you out. They must determine whether your reason for not filing on time is sound and established (with proper documentation) before waiving or reducing any penalties. These reasons include:

  • Death, serious illness, incapacitation or other absence of the taxpayer or an immediate family member.
  • Fire, natural disasters, casualty, or other similar disturbances.
  • Inability to get important tax records.
  • Other reason that shows you genuinely attempted to meet your tax obligations but could not.

Reasonable causes if you forgot to file taxes

Note that not having enough money to pay isn’t a listed reason for not filing or paying on time. The only exception here is if the reason you don’t have the money to pay is similar to the ones above.

Even if you have a good reason, the IRS typically doesn’t waive any accrued interest on your balance. If the IRS charged interest on a penalty that they are reducing or removing due to reasonable cause, they can reduce or remove that specific interest.

So, what should you do if you forgot to file taxes?

Easy – you should file those taxes ASAP. The sooner you file, the sooner you get your refund. And if you owe the IRS money, the sooner you file, the lower your tax bill.

When paying right away isn’t an option, tax pros can help negotiate with the IRS on your behalf. Our tax professionals are always available to ensure your unfiled taxes are handled quickly and accurately. Tax Defense Network by MoneySolver has been helping individuals and businesses deal with tax issues with the IRS for over a decade, and there’s little we haven’t been able to help with. If your situation is fixable without our services, we’ll let you know that up front, too. Start with a free consultation today. 

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