Saturday, October 12, 2013

What Happens If You Don’t File Your Tax Return On Time?



It’s not uncommon for people to experience delays when filing their tax returns. Are you running late and fretting about the consequences? There are penalties for late filing and late payment such as interest.  Don’t worry though. It’s not the end of the world to file your taxes late. A tax lawyer can help you deal with this situation.

The IRS penalizes taxpayers for late filing and late payment.  On top of these two fines, the IRS also charges interest for taxes that have not been paid.  If it is painful for you to part with good money because of late payments, get your act together and meet the IRS deadlines. If you are already late and there is nothing to be done about that, what you can do is look for a competent tax lawyer.
A tax lawyer can help you argue “reasonable cause” for delay. He can also advise you on easy payment methods, which the IRS will be amenable to for as long as you can show proof of financial difficulty.  There is a ton of paperwork involved so having a professional at your side is best. Just refrain from excuses like “my dog ate it.”  We’ve tried it, it doesn’t work.
Late Filing Penalty
If you fail to file your tax return by the due date, expect to be fined 5% of the net amount of tax due for every month that the tax return is late. It is calculated from the deadline to the time that the return is actually filed.  The maximum penalty is 25% of your tax bill, so you cannot be fined more than that.
A good option for those who are running late is the submission of Form 4868, which is the application for extension. This option is for those who need more time to prepare their federal tax return. It is important to remember that Form 4868 does not extend the time to pay.
Late Payment Penalty
If you fail to pay your taxes by the due date, you will be fined 0.5% of the portion of your tax bill that is unpaid. This is a monthly fine so your penalty increases every month that you don’t settle your tax bill.
The services of a good tax lawyer come in handy at this time. There are instances when the IRS waives or abates penalty if there is reasonable cause for the delay.  You may also submit an offer in compromise. The IRS won’t insist on collecting taxes from you if doing so will create financial hardship, i.e., put you on the streets begging for food.
Interest
In addition to the penalty, you will also pay interest for each day that the payment is late. Interest rates change because they are set by the IRS quarterly.  According to the IRS website, the interest rate for September 2013 is 3% per year. It is calculated based on the amount that remains unpaid.
One important thing about taxes is that even if you have difficulty paying them, you should still file your tax return on time. A good tax attorney can help you explore payment options and even help you request abatement  The IRS will work with you and won’t bleed you dry. But you should file your tax return on time.
Question:
Do I always need legal representation when dealing with the IRS?
Answer:
No, you may request abatement and make offers in compromise on your own. A tax lawyer has the experience and the expertise, so their professional services improve your chances of success.
Comment:
The article should have also included what constitutes “reasonable cause.”  As far as I know, death or grave illness by the taxpayer or a close kin is an acceptable reason.  Are there others valid reasons that the IRS accepts?
If an IRS employee or a tax practitioner gives you wrong information, this situation is also considered by the IRS as reasonable cause.

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