There are a number of reasons people avoid doing their taxes. Some people dread going through the paperwork and trying to understand complicated forms. Others think that because they probably don’t owe any money, they don’t need to file a return. If you’re wondering whether you should be filing your taxes every year, the answer is yes.
At Cash Factory USA, we’re the experts who can help you with filing your taxes. Let us explain why it’s so important to get those documents to the IRS.
1. Penalties & Fees
The IRS considers it a major offense not to turn in your paperwork. When you don’t file your taxes, you may be hit with a failure to file penalty. The penalty is usually a sum of 5% of the amount you owe that accumulates every month you don’t file your taxes.
There are also late payment fees that can add up to a percentage of the taxes you owe. While these are smaller, the IRS keeps track and they can grow to much larger amounts. The penalties for failing to file and for filing late are capped at 25% of the unpaid amount. If you owe $500, you could end up paying $125 extra plus any additional interest.
2. Substitute Returns
While it may take a few years for the IRS to figure out that you didn’t file a return, once they do, they make one up for you. An IRS-created tax return, also known as a substitute return, includes every single source of income the IRS can find. This information will come from personal information they find from previous jobs, background checks, and credit reports. The problem here is that the information can often be faulty or out of date, so you may end up with a substitute return that claims you owe a hefty sum.
Another downside to substitute returns is the lack of deductions or tax credits. The IRS doesn’t have the time to go down the list and figure out exactly what you might qualify for. If you don’t file your own taxes, you could be missing out on important tax credits that entitle you to money back.
3. No Tax Refunds
If you don’t file your taxes, you won’t know if you deserve a tax refund and you could be missing out on a lot of money. Many people are surprised to find that they paid so much in taxes over the course of the year, the government owes them money instead of the other way around.
There is a three year limit on claiming your refund money, so don’t wait too long to file your taxes or that money could be going to penalties or it may disappear completely. The IRS is currently sitting on a billion dollars of unclaimed refunds. Some of that money might be yours.
4. Losing Out On Credits
Losing out on social security credits is only a problem for people who are self-employed and don’t file their returns. If you own your own business, there could be a risk of missing out on future social security payments. The IRS relies on you to report how much money you made and how many social security credits you accrued. When you don’t file your taxes, you’re putting your retirement at risk.
5. Damage to Your Credit Score
Once the IRS figures out that you owe them money, they wait quite a while to give you a chance to pay them. Unfortunately, once they run out of goodwill, they take aggressive steps to recoup their money. They could put a levy on your income — siphoning money away from your paycheck before you get it. Your boss will find out you didn’t file your taxes and you could be in for an embarrassing conversation. The IRS could also file a notice of federal tax lien. The lien will appear on your credit score and cause it to drop dramatically.
6. Jail Time
There are extreme cases when people don’t file their taxes for many years, which result in a charge of tax evasion. The IRS charges you with a crime that could land you in prison. While this isn’t a common occurrence, there have been cases where even celebrities served jail time for evading their taxes.
If your case doesn’t involve very much money, you could avoid going to jail, but you still have to pay enormous fines and penalties for not filing your taxes.
Help with Filing Taxes
With all these negative effects associated with missing tax returns, you should jump on any late paperwork right away. You don’t have to worry about how complicated it could be to file — just turn to the free software from the IRS to help you file taxes quickly and easily. This software can be used by anyone who meets their income requirements for the most recent tax year. If you have older returns that still need to be filed, you must send them in through the mail.
For those that owe much more than they can pay, discuss your options with the IRS. They often have payment plans that can help you budget your payments from month to month.
What to do Now
Worried that several years of outstanding tax returns may catch up with you? It could be time to speak with a credentialed tax advisor or CPA. Most offer free consultations and limited advice until you decide if you need their help. Learn more about your taxes when you call today.
More Information & Advice
At Cash Factory USA, we’re here to provide advice for all your financial hurdles. Whether you need assistance with your budget or you’re working through your taxes, our experts are here for you. We’re also here to help you with short-term and long-term loan options that can help you get through financial hardship. Explore our blog today for financial advice or visit the Help Center for information about our other services.