File the return! Some
people are afraid to file when they owe tax they cannot pay. Eventually
the IRS will catch up with most non-filers. Delaying filing can be
quite expensive. Here's what often happens: When
a return is not filed, after a period of time, the IRS will request the
return. If the request is ignored, the IRS will charge tax using the
information they received from sources such as employers, banks,
brokerage firms, retirements plans and the Social Security
Administration. That may or may not be the correct tax since it will not
take into account the filing status and deductions that the taxpayer is
entitled to. Eventually, a payment plan is unavoidable. At
that point you will have dug yourself a hole that could be very
difficult to deal with. That"s because the IRS will not allow you to dig
that hole deeper. That means you will have file returns on time and pay
any taxes due. At the same time you will be making payments on the back
taxes. To add to that pain, you will owe penalties and interest that can add about up to 47-1/2% to the unpaid taxes. Penalty
for filing late. It's 5% of the tax due for each month the return is
late. The maximum is 5 months, but you can do the math on 25% of the tax
due! Penalty for paying late. It's 1/2 of 1 percent per month for up to 45 months. That's amounts to nearly another 25 %. Interest. Currently 5% per annum computed daily. Note: You won't be able to avoid the late payment penalty and interest until you make payments. State Taxes. All of the above will be compounded by state tax laws and procedures. |