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San Mateo, CA: Are you aware of the potential consequences if you fail to file your federal tax return by the due date or extension date?
You should be aware of the potential consequences if you fail to file your federal tax return by the due date or extension date. From their latest estimate, the IRS believes approximately 5 million people that SHOULD have filed a tax return did not. If you are one of those taxpayers, it is crucial to understand the implications of not filing a tax return. Here are a couple of consequences:
1. Failure to File Penalty:
One of the most critical consequences of not filing your tax return on time is the failure to file penalty. This penalty is imposed by the IRS automatically as a way to encourage timely filing.
The failure to file penalty is calculated based on a percentage of the taxes you owe. It begins accruing from the original due date of the return (without regard to extension) and continues to accumulate for each month or part of a month your return is late. This can quickly lead to a substantial amount owed on top of your original tax liability.
For instance, the penalty amounts to 5% of the unpaid taxes per month that your return is late, up to a maximum of 25%. It is easy to see how quickly you can dig yourself into a tax hole with this penalty alone. Say you owe $5,000 after completing your tax return in April. By September, your tax bill has risen to $6,250 plus interest. And yes, interest is charged both on the penalty AND the tax due!
Even for those who file "a little late", if your return is over 60 days late, the minimum penalty can be either $435 or 100% of the taxes you owe, whichever is less.
2. Substitute for Return (SFR):
If you don't file a return, the IRS might prepare a "substitute for return" (SFR) on your behalf. An SFR is a tax return prepared by the IRS from the limited information available to the IRS, such as income reported by third-party reporters like employers and brokerage accounts. The SFR does its best to cover all your reported income, but rest assured that the IRS does not work as hard to include deductions and credits you're eligible which results in a potentially higher tax liability.
Why Seek Help:
If you've missed the filing deadline, don't panic. As a certified tax attorney, I specialize in tax resolution and can help you navigate through these complexities. I can assist you in filing delinquent returns, ensuring you claim all the deductions and credits you're entitled to, potentially reducing your tax liability. We may even be able to abate some of the penalties if you have good cause or are not a habitual non-filer. Even the IRS understands that things happen in life sometimes.
It is always better to address the issue proactively . If you or someone you know hasn't filed a tax return, reaching out for professional assistance can make a significant difference in the outcome. Like most things, ignoring the problem only makes it worse.
Kevin Rego
Law Office of Kevin Rego
650.933.5222
