Why you should file, even if you can’t pay

Many people who do not file their taxes do so because they know (or think they know) that they cannot afford to pay the tax they owe.

The IRS assigns 2 different penalties to late file/pay returns:

The Failure to file penalty is equivalent to 5% of unpaid taxes for up to 5 months, PLUS a flat fee fine based on how late it is.  

The Failure to pay penalty (meaning you filed, but didn’t send in any money) is only 0.5% of unpaid taxes per month, up to a max of 25%.

If you both fail to file, and fail to pay, you get ALL of the fines and penalties!

If you at least file, even if you don’t pay, then you minimize your fines dramatically, and give us time to work toward a resolution, and keep the government from assigning liens to your assets, or levying your bank account.

Here is another flawed logic that people use when they don’t want to file, or can’t pay: “If I just don’t file, the IRS won’t know about it, and I can do it later when I have the money.”.

WRONG!  That argument is flawed for so many reasons:

1)     The IRS WILL find out.  If you received a W2, or any 1099, the IRS already has a copy of that, and their automated systems are already at work matching up which W2s and 1099s don’t have taxpayer filings attached to them.

2)     When they DO find out (and they likely will), then, you will not only owe the tax, but all of the fines and penalties mentioned above, PLUS interest on the unpaid tax.

If you at least file your return, even if you can’t pay, that keeps your penalties to a minimum, and gives us an opportunity to come up with a plan and talk to the IRS about how you want to handle the owed tax.  Perhaps we need to consider an offer or payment program to the IRS.  This gives us the time and ability to do so.

Need help figuring out your tax issue or talking to the IRS?  Shoot me an email and let’s talk.

Sabrina@sernatax.com

*Disclaimer: This post does not contain any tax advice. These are simply concepts you should consider and discuss with your tax advisor. Without knowing your specific situation, and having an engagement letter in place, I cannot provide specific tax advice over an internet post or video. To discuss your specific tax situation, feel free to send me an email to make an appointment for consultation.