If you have filed for a tax extension, then you are not alone. The pandemic and the historic economic contraction has probably pushed even the most secure taxpayers to consider asking the IRS for options. With the public scrambling for survival and employment change strategies, tax filing would not be on the top of anyone’s priorities. The IRS has already relaxed the date to July 15, but if things are not looking up for you or your business, then the October 15 deadline serves as a worthy option.
But what could be the worst punishment for missing the final date to file? Experts have weighed in on the possible repercussions. The factors could be even remotely related to current crises. It could be a change in business or financial structure changes in your business. But they have burnt the issue down to two options. Either you miss the money that the IRS owes you or you invite penalties and interests on what you owe. The penalties can range from a mere cash amount or, for those who have not filed for years, an unavoidable battle with the IRS lingers around the corner. The worst-case scenario for the ones who have not filed for years would be due to multiple reasons. If you have been thinking that skipping a year might bring you relief, then the approaching tax seasons in the future will only increase the burden of the preceding years. This is where the IRS tends to enter into an ugly tussle with you and your profile. The best way out of this mess is to get in touch with them and inform them about your grievances and they might be able to show you some light.
IRS and help
Recently, the IRS released an official notice about acknowledging the difficult conditions that many of us have found ourselves in. Although they changed the date to July 15, they do encourage taxpayers who intend to extend or skip this year’s filing. Do visit IRS.gov and check the various services that they have come up with.
The payment options and gateways have been simplified in the past years enabling taxpayers to maintain their own profiles and monitor their activities or deadlines. The agency now offers its own simple guide to know how much you owe or even to figure how much can be claimed as deductions. The IRS tool also helps in much-needed calculations that help you figure out the amount.
Automatic returns filing by IRS
By skipping tax seasons, one might feel at ease without any prompts or warnings from the IRS. This does not necessarily mean that you have been left alone. The IRS audits every non-cash transaction that you have made no matter how many times you have missed out on filing returns. If you are a person with income, then it goes without saying that the IRS is monitoring your transactions and file returns on your behalf. This could be any payment you have done with an electronic footprint. It could be when you bought a book from amazon, your side hustle payments received through online payments, or even pay stubs from your job. Transactions can also be of miscellaneous in nature from your bank or brokerage, for example, your 1099 payments.
The IRS files such returns under the ASFR (Automated Substituted For Return) provision by taking into account only your income and not your deductions. Almost all tax experts believe that this is a complete loss to all the deductions that you might be entitled to. Being married with five children is an example of how much deductions can make a difference to the taxable income of a married taxpayer. Once a tax notice is received in the form of ASFR, tax experts believe that getting in touch with the IRS immediately is the only way to reconcile and smoothen things out with the authorities. Else they will continue with their collection proceedings, which includes freezing your bank account or letting a third party deduct payments from your bank account.
Penalties and deadlines
If you have missed your due date for payment, then penalties would follow. We all know this. But what if you have paid partially? Regardless of extensions, this may result in similar penalties unless you have a tangible reason to justify the payment or if your Form 1127 (Application for Extension of Time for Payment of Tax Due to Undue Hardship) has been accepted by the IRS. It is also worthy to note that interests are charged on the tax which is not paid by the due date, even if you have an extension to pay but the same interests are charged on late payments.
If you are due a refund, then this might be a reliever as there are no penalties. However, if the statute of limitations has expired and if you file your returns after, then you risk losing all of the refunds. If you have filed a return claiming for older refunds, then failure to do so within three years of initiating the process can result in the cancellation of any refund checks along with the application of any credits, including overpayments of taxes of other years that are not paid up until that point. In certain circumstances, this can go up to six years too. The IRS says that there are no statute of limitations that stand valid for assessment and validation of taxes if none are filed. But that does not nullify the fact that the IRS has no deadlines to go after non-filers of taxes. So it is better to stay out of any trouble whatsoever may be your reason.
Not paying taxes can trigger problems that nobody wishes to see. This has been proven by many who have tried tricking the IRS into believing that their profiles do not simply exist. Almost every tax expert would suggest just the opposite. They would ask you to cooperate with the feds. This is not only to stay out of trouble but also to help you understand that there are many ways in which the government may owe you money. This counter-intuitive approach has not really found its way to everyone. The general fear of auditing and the IRS is to blame for this ignorance. But as a smart business owner or as a medium-income worker, being aware of the repercussions of not paying your dues and working with a smart tax professional could turn your financial profile around. So instead of cribbing about what could go wrong every tax season, we suggest you work with a highly distinguished tax strategist like UBOS to help secure your future.