If you forgot to file your taxes, thought you filed but didn’t make that last crucial step, or didn’t file because you thought you would owe too much, you could potentially end up owing the IRS 50% more.
I forgot to file my taxes. Now what?
There are two separate penalties the IRS imposes when you file to file your tax returns: failure-to-file and failure-to-pay.
The Failure-to-file penalty is exactly what it sounds like—A penalty that accrues when you fail to file your tax return in a timely manner. The failure-to-file penalty is 5% of the unpaid taxes for each month or part of the month that that tax return is late, not to exceed 25%. There is also a minimum penalty of the smaller of $210 (for returns due in 2018 or 2019) or 100% of the unpaid taxes if you return is filed more than 60 days late.
The Failure-to-pay penalty accrues much slower than the failure-to-pay penalty, at 0.5% of the unpaid taxes per month. This penalty is also capped at 25%.
Additionally, while not paying your taxes can land you in some hot water financially, not filing your taxes, if you are obligated to file one, is considered tax fraud and is a crime. While the odds of you ending up in jail over not filing your tax returns is low, you don’t want to have to go through an IRS criminal investigation.
What Can Happen?
If you do not file your tax return, the IRS can make one for you with the information that has been reported to them by your employer, banks, mortgage company, etc. The tax return generated for you by the IRS will almost always be higher than a properly prepared tax return. Remember that the IRS does not have access to most of the information concerning your potential deductions.
Lastly, if you never prepared your tax return, you may actually be owed a refund. But you only have 3 years to claim a refund.
What Should You Do?
The best thing to do is consult your tax professional and file your tax return as soon as possible. Once you’ve filed your return, you can then begin working with the IRS to take advantage of the IRS' payment programs or possibly an offer in compromise.
In certain cases you can request a waiver of the penalties. Severe illnesses, a death in the family, life tragedies such as a house fire, and certain natural disasters can qualify you for relief from the penalties.