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Taxpayers that fail to file their tax return for one or more years for various reasons can become overwhelmed later on down the road when attempting to file all their missing tax years at once. Missing all or a portion of their records, personal hardship and/or neglect are some of many reasons people fall behind in filing their taxes. Fortunately, there are ways to approach the problem of unfiled tax returns.
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What happens if you have Unfiled Tax Returns?
Most years, the IRS requires you to file your taxes by April 15th. If you don’t file your tax return you may receive late penalties, and your refund could be delayed or even forfeited if filed late enough.
The IRS will assess a penalty equaling 5% of any unpaid taxes for every month that a tax return goes unpaid. This will max out at 25%. Speak to a professional consultant if you need to file for an extension on your taxes to avoid these penalties.
If you consistently file late, the government may run an investigation, which can take some time. This will consequently delay your tax refund and may result in a refund being forfeited depending on the fines.
Collection Actions for Unpaid Taxes
When you file a return or the IRS files an SFR that shows a balance due, the IRS will try to collect those unpaid taxes. This means that the IRS may file a lien that attaches to your property or rights to property. The IRS can also take more aggressive action such as placing a levy on your bank account, wages, or other sources of income. The IRS can also seize your property. In some cases, the agency can even take your home if you don’t pay taxes.
Tax-Related Identity Theft
An area of increasing attention is identity theft. If you haven’t filed taxes, it increases your risk of tax-related identity theft. With this scam, someone uses your social security number, files a fake return, and has the refund sent to their bank account. When you try to file back taxes for that year, you will incur processing delays. The IRS advises people to file taxes as early as possible to minimize the risk of someone else filing taxes with your info.