Late Tax Filing: What Can the IRS Really Do?

Late tax filing is no big deal if the IRS owes you a refund. In fact, if you just plain forgot to file, the IRS might keep forgetting until you waved some other red flag or they decide you might owe them money. You can bet your bottom dollar you’d be in trouble and any refund you ever had coming would be tied up ’till the cows come home.

Whether you’ll have a late tax filing with or without a refund or owed taxes, we can help you. You’re not in this by yourself!

Didn’t file by April 18th?

There is no penalty for filing a late return after the tax deadline if a refund is due. Penalties and interest only accrue on unfiled returns if taxes are not paid by April 18. The IRS provided taxpayers an additional day to file and pay their taxes following system issues that surfaced early on the April 17 tax deadline. Anyone who did not file and owes tax should file a return as soon as they can and pay as much as possible to reduce penalties and interest. For those who qualify, IRS Free File is still available on IRS.gov through Oct. 15 to prepare and file returns electronically.

Filing soon is especially important because the late-filing penalty on unpaid taxes adds up quickly. Ordinarily, this penalty, also known as the failure-to-file penalty, is usually 5 percent for each month or part of a month that a return is late.

But if a return is filed more than 60 days after the April due date, the minimum penalty is either $210 or 100 percent of the unpaid tax, whichever is less. This means that if the tax due is $210 or less, the penalty is equal to the tax amount due. If the tax due is more than $210, the penalty is at least $210.

In some instances, a taxpayer filing after the deadline may qualify for penalty relief. If there is a good reason for filing late, be sure to attach an explanation to the return.

Alternatively, taxpayers who have a history of filing and paying on time often qualify for penalty relief. A taxpayer will usually qualify for this relief if they haven’t been assessed penalties for the past three years and meet other requirements.

IR-2018-102, April 23, 2018

Keep in mind that late tax filing and late payment aren’t the same. If you file late and owe taxes to the IRS, you’re subject to penalty charges and interest for both. When combined, you can be looking at 22.5 percent for filing late plus 25 percent for late payments! Remember, too, that there is only a 3 year window for you to submit a late tax filing and still receive your refund. After that, your money is handed over to the U.S. Treasury. It is no longer your money. However, there is no statute of limitations for the IRS to go after your back taxes and penalties and interest that keeps building.

What happens with a late tax filing when no tax is due?

Not much. The IRS isn’t going to rattle your cage if they owe you money. Just like any business, they’re happy to use your hard-earned money, interest-free, until you ask for it. There’s even more incentive for the IRS to keep quiet. Anyone who doesn’t file within a 3 year period pays a steep penalty for their indiscretion. If there is a late tax filing, one with a refund due, submitted beyond that 3-year limit, the IRS keeps 100% of the refund. All of it. That’s a pretty hefty penalty for “forgetting” to file.

The tax filer could also be hit with another unexpected, troublesome issue when filing within the 3 year grace period, thinking they would be entitled to their refund. 2018 is the last tax year, under the Tax Cuts and Jobs Act of 2017 , that there is a penalty for not having health insurance. For the tax year 2017, the penalty was 2.5% of total household adjusted gross income, or $695 per adult and $345.50 per child, up to a maximum of $2,085. For tax year 2018 and beyond, as it stands now, the penalty amounts have not been announced, but are expected to increase.

What else can possibly happen?

Well, on the positive side, the IRS doesn’t particularly want you in jail and you can’t go to jail just because you owe taxes. Title 26 USC § 7201. Any person who willfully attempts to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof  “shall be imprisoned not more than 5 years.” The fine line between tax evasion and tax avoidance is one many taxpayers walk carefully and toe the line without crossing. Whereas tax evasion is illegal, tax avoidance is the legal use of tax laws by an individual, corporation or trusts to reduce a tax burden.

Both you and the IRS could lose your refund to cybercriminals!

This is no empty threat or speculation! The financial industry is a key partner in fighting identity theft, helping the IRS recover fraudulent refunds that may have been issued. In 2017, banks recovered 144,000 refunds compared to 124,000 in 2016 – a 16 percent increase. The amount of refunds recovered was $204 million in 2017, compared to $281 million in 2016. In 2015, the financial industry recovered 249,000 refunds totaling $852 million.  IR-2018-21, Feb. 8, 2018

What about Arkansas, Oklahoma and Missouri income tax returns?

• Arkansas honors all federal extensions as valid state extensions. An extension to file isn’t an extension to pay and interest and failure to pay penalty are assessed if any tax due is not paid by the original due date.
• The regular deadline to file an Oklahoma state income tax return is April 15. However, if you efile your return through a tax preparer or an online tax vendor, your due date will be extended to April 20. Any payment of taxes due on April 20 must be remitted electronically in order to be considered timely paid. If the balance due on an electronically filed return is not remitted electronically, penalty and interest will accrue from the original due date.
• In Missouri, if you receive an extension to file your federal tax return, you will automatically receive an extension of time to file your state return, but not an extension to pay taxes owed. Penalties on owed taxes will apply.

What’s the bottom line?

If you haven’t filed your taxes or an extension and haven’t paid taxes owed, you need to get this done immediately. You’ll have penalties, and interest started accumulating on April 19, 2018.

If you have never consulted with a CPA tax professional, now is definitely the time to do it. Don’t go up against the IRS alone, we can help you.

We establish and maintain a personal and business relationship with our clients. Your LIFE is your business and your BUSINESS is your life, and we’re here for YOU.

Call us at 479-668-0082. Use my Calendy Page (it’s easy) to set an appointment or email us.

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