If you’re a small business owner and you want to keep your tax burden to a minimum, then the last thing you want to do is forget to file your taxes. However, it can happen. If you’re one of those people who just doesn’t like dealing with paperwork (or if you were just too busy), then this article will help you understand what happens when you don’t file your business taxes. Don’t let the tax deadline sneak up on you again. So what happens if you don’t file your taxes for your business?
So, What Happens When You Don’t File Your Business Taxes?
If you have a business, you have to pay taxes for that business and it’s essential to know that the government expects you to file those taxes on time. Failure to do so will result in penalties and interest, which can be very costly. If you don’t file your business taxes by the due date, there are a variety of things that can happen. Let’s go over a few of those possibilities.
Initial Issues When You Fail to File Taxes
If you don’t file your federal income taxes on time, there are several possible initial consequences, including:
Tax Penalties
The penalties can be pretty steep: up to 5% of your unpaid tax bill every month (that is 1/4th of your bill). Plus, another 5% on top of that for each month after the first 5 months. And that is not all! If it looks like you did not pay those taxes just because you forgot about them (which you should never do), there’s an additional failure to file penalty—10% of what you owe. That is 20% total!
Additional Interest on Taxes Owed
The IRS charges interest on any taxes you owe, but that interest is compounded daily. The longer it takes for you to pay your taxes, the more interest you will pay on them. Interest rates are based on the IRS’ daily short-term federal rate, so they change frequently. In fact, even if you file your return within a few days of the deadline, there could be penalties and interest charges added to your balance due.
Tax Refunds From Your Tax Bill
Don’t be surprised if you don’t get your refund this year. If you’re due a refund but have not filed your returns yet, the IRS will send you a notice or reminder. If you don’t respond or update your information with them within 30 days, they will automatically start withholding 20 percent of your refund until they receive their filing from you. This is called an offset refund. The IRS is required to send you a notice before they do this, however, so make sure to keep an eye out for any communications from the agency.
Substitute for Return
If you haven’t filed your business taxes by the deadline and didn’t pay enough estimated taxes, the IRS will send you a Substitute for Return (SFR). This means that instead of sending in a return, they will fill out a return for you using their own formulas for calculating tax liability. The IRS may also send this form if you make an error on your original return.
IRS Collection on Your Tax Bill
IRS collection is a very serious matter. If you don’t file your tax returns on time, the IRS will send you letters to remind you that your taxes are due.
Initial Notices and Letters
The IRS is required by law to notify taxpayers of their delinquency. If you don’t file your taxes, business or federal income tax, they will send a letter stating that your tax return is due. The IRS typically gives you two weeks to respond. If they don’t hear from you, they will send another letter asking for payment in full or requesting additional information regarding your return. If you still don’t respond, the IRS can send one final notice with a deadline for payment. The final notice offers an agreement to pay over time if you can’t afford to pay in full at once.
IRS Enforcement
While it’s not fun to think about, there are some serious consequences if you don’t file your business taxes. And even though you might be tempted to put off filing those returns, it’s important to remember that the IRS has a variety of options at its disposal to make you pay that include:
Tax Liens
A tax lien is a legal claim against your property that allows the IRS to seize and sell off any assets you own to collect on your unpaid taxes. It also prevents you from selling or refinancing your property until the debt is satisfied. In some cases, a tax lien can even prevent you from obtaining a mortgage or other types of loans if it shows up on your credit report.
Tax Levies
If you fail to file your business taxes on time, the IRS will send you a notice and demand payment. If you still don’t respond, they will begin levying your business assets or bank accounts. The IRS can levy up to 25% of any money in your bank account, or they can seize your business property if it has significant value.
Criminal Charges
In extreme cases where someone deliberately tries to avoid paying taxes by hiding money away or lying about their income, the government can charge them with tax evasion—which is illegal! If convicted of tax evasion, offenders face fines up to $250,000 and prison time of up to five years per count (and that doesn’t include state penalties).
What To Do if You Can’t Pay
It’s easy to forget about taxes. That is until you get a notice from the IRS that you owe money, or worse, that your business was shut down because of tax noncompliance. Here are some things you should know if you don’t file your business taxes:
Offer in Compromise
If you cannot pay all your taxes, you may be eligible for an offer in compromise (OIC). An OIC allows taxpayers who owe $50,000 or less in total tax liability to settle their debt for less than the full amount owed. It is a great way to save money on interest and penalties if you don’t have the funds available to pay off your tax debt.
Installment Agreements
If you cannot pay your taxes in full, you may be able to set up an installment agreement with the IRS. This is a formal agreement between you and the IRS that allows you to pay your taxes over time. The IRS will send you a bill for the amount due, and then your payments will be deducted from your bank account on a predetermined schedule until the debt is paid in full.
Penalty Abatement
The IRS has a program called penalty abatement that allows you to get out of paying penalties on late tax returns. What this means is that if you file your taxes late, but then file an amended tax return before the IRS catches up with you, they won’t charge any late filing penalties. This program only applies to individual taxpayers who owe less than $52,000 in unpaid taxes. Being caught off-guard by tax obligations is no fun. You’ll want to get yourself squared away quickly to avoid penalties. So, if you are unable to pay your taxes, make sure to contact the IRS as soon as possible to sort things out.
Frequently Asked Questions
What is Tax Evasion?
Tax evasion is the illegal act of trying to avoid paying taxes by hiding money or income from the government. This can also include making false statements or misrepresenting facts to avoid paying what is owed. Tax evasion is an extremely serious crime that can result in a prison sentence, monetary fines, or both.
Can I go to Jail for Unpaid Taxes?
The short answer is no. If you have simply failed to file your taxes, the IRS will send you reminder letters and eventually begin collection efforts. If you still don’t respond, they may pursue delinquent tax cases in court or with administrative hearings. However, if you’re unable to pay because of financial hardship, it is possible that they will not pursue legal action against you at all.
Should I File Even if I Missed the Deadline?
If you have missed the deadline for filing, it is not too late to get caught up. In fact, if you are a first-time offender, the IRS may waive the penalties as long as you file within 60 days of receiving a notice from them. Make sure you try to avoid the failure to file penalty at all costs.
Do I Have to File if I Don’t Own Money?
If you don’t owe any taxes, then you don’t have to file a return. You may want to file anyway so that the IRS can confirm your income and withholding information for next year.
The Bottom Line on Filing Your Taxes
As you can see, not filing your taxes can have all kinds of financial consequences. However, filing your taxes is easier than a lot of people think. Keep good records throughout the year, set money aside for tax season, try to avoid the failure to file penalty at all measures, and connect with a reputable accountant to offset some of the stress—and save yourself some serious money.
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