Taxes are one of life’s unavoidable realities, much like breathing. But, being human, most of us have procrastinated filing our taxes until the last minute. With the current tax season underway, IRS Tax Day has been scheduled for April 15, 2025. If you are not prepared, the approaching deadline can make you nervous. But what if you file your tax returns beyond the due date? Are the repercussions that severe?
What happens when you try to misguide the entire tax system?
There is no statute of limitations for tax filings. Although the IRS does not generally pursue persons who have unfiled tax returns for six years or more, it retains the authority to take further action. This is common in cases of long-term non-compliance on the part of the taxpayer. Tax laws differ by state.
A simple thing, such as a postmarked date on the envelope for mailed returns, can indicate when the tax return was sent. In some cases, this can be a clear indication of when tax returns were filed. The IRS may be able to file your tax return on your behalf. This typically occurs when they have access to a person’s W-2 form.
Typically, a company completes the wage and tax statement and sends it to the employee at the end of the year. With these “substitute returns,” information from the W2 will be used to issue the individual a Notice of Deficiency along with a proposed tax assessment. Although helpful, it prevents you from taking advantage of standard exemptions and deductions.
When the deadline is behind us and uncertainty looms
Realising that the deadline has past makes one wonder if tax filing should not be postponed till the next fiscal year. However, late is better than never. Time is of the essence here; submitting a few days late is preferable than submitting a few weeks late, so don’t put it off any longer. The repercussions will depend on whether money is owing to the IRS or if the individual receives a refund.
Refunds are not lost when tax returns are submitted late; they are simply delayed. Refunds can still be claimed up to three years after the first filing date. Anything beyond that will be forfeited. Penalties for late submissions accrue monthly. An extra IRS failure to file penalty of 5% is then applied to the total amount owing to the IRS. According to the IRS, anything between one and thirty days late counts as one month.
The failure to pay penalty is applicable to all unpaid taxes
The failure to pay penalty applies to all unpaid delinquent taxes. 0.5% of the total overdue amount per month, up to 25% of the total amount owed to the IRS, may be issued. Transgressions in filing and paying delinquent taxes might result in penalties from both sides. In certain circumstances, the IRS often reduces the overall failure to file and failure to pay penalty that is owed.
Breaking it down, if you are one month late with your filing, you may owe 4.5% instead of 5%. The penalty for failure to pay would then be 0.50%. Adding fuel to the flames is the fact that interest will be paid at a 7% annual rate. It is not advisable to overlook financial hardship. Rather, pay what is affordable at the time and negotiate a payment plan with the IRS. It is never a smart idea to neglect tax issues.
