I have not filed my tax return and won't be able to pay what I owe. What should I do?
File the return!
Some people are afraid to file when they cannot pay the tax they owe. 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 bill you for tax using the information they received from sources such as employers, banks, brokerage firms, retirement 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, deductions and credits you may be entitled to.
Eventually, a payment plan is unavoidable.
At that point you will have dug yourself a hole that could be very difficult to get out of. 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 that can add about up to an additional 47-1/2% of the unpaid taxes plus interest.
The penalty for filing late is 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!
The penalty for paying late is 1/2 of 1 percent on the unpaid balance each month after April 15 for up to 45 months. That's amounts to nearly another 25%.
Interest is currently 5% per annum computed daily.
All of this will be made even worse by state tax laws and procedures.