What Happens if Taxes Are Not Filed?

Refer to Business structures to find out which returns you must file based on the business entity established. When completing Form 1040 with little or no income, it’s crucial to fill it out accurately to claim any refundable credits, such as the Earned Income Tax Credit (EITC). This can result in a tax refund even if you don’t have taxable income. You’re practically inviting a response from the IRS if you don’t report all of your taxable income on your tax return. You know those W-2 and 1099 forms you get from employers and other people who pay you during the year? Whether it’s an impersonal exchange of forms and documents through the mail or a face-to-face grilling at an Internal Revenue Service office, nobody wants to go through an IRS audit.

• Certain tax credits, like the Earned Income Tax Credit, can provide refunds even when no taxes are owed.
• Ask if the return you filed was accurate to your best knowledge when you filed it.
• While you should always aim to file your taxes on time, you may occasionally miss the tax deadlines.
• There are procedures the IRS must follow in order to garnish your wages, including sending you a final written notice 30 days prior to garnishment.
• Individuals whose income falls below IRS thresholds are generally not required to file.
• A lot of people delay filing their returns because they can’t pay what they owe.

Civil Consequences

Different filing statuses, such as single, married filing jointly, and head of household, significantly affect the amount of taxes owed and eligibility for credits. For instance, tax credits like the American Opportunity Tax Credit can be claimed even if the tax owed is zero, resulting in a possible refund. Filing a return can be rewarding, even if you didn’t earn any income during the tax year. Get your biggest possible refund guaranteed when you file with ezTaxReturn. Even if your income is below the taxable threshold, filing could still be beneficial for claiming refundable credits. These credits, such as the Earned Income Tax Credit (EITC), can lead to refunds even if your taxable income is zero.

Though, repeat offenders aren’t likely to have these requests approved. The IRS generally only allows you a pass on your first time missing deadlines under the First Time Penalty Abatement Policy. If you filed a tax return on time but didn’t pay your owed taxes when they were due, the IRS will likely assess a penalty on you. Explore the implications of not filing a tax return, including legal requirements, potential penalties, and exceptions, plus steps to address unfiled returns. It’s important to note that the consequences of not filing taxes can be quite severe.

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This disclosure statement, along with a note explaining your situation attached to your return, should help you avoid penalties if you underestimate the amount you owe, Smith said. More often than not, you’re better off filing a return, even if you don’t need to. That way, you won’t run afoul of any IRS filing requirements, letting you avoid the penalties, interest, and other consequences that come with not filing or paying your taxes on time. U.S. citizens and resident aliens living abroad may qualify for exceptions under international tax arrangements.

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The IRS audited only 0.3 percent of all personal income tax returns for the year. However, the audit rate jumped to 1.2 percent for people who reported between $1 million and $5 million of income — and it goes up from there. The tax agency audited 2.2 percent of returns reporting between $5 million and $10 million of income, while the audit rate surged to 9.2 percent for people reporting income exceeding $10 million. If taxes are not filed, you could face consequences such as failure-to-file penalties, accrued interest on unpaid taxes, loss of potential refunds, and missed tax credits and deductions.

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However, neglecting this responsibility can lead to significant financial and legal consequences. Understanding when filing is required and how to address unfiled returns is crucial to avoid penalties or complications with tax authorities. When tax returns are filed late, or when tax payments are not made on time, the Internal Revenue Service (IRS) may assess penalties. In some cases, the IRS may waive the penalties if the taxpayer can show that they had reasonable cause for not meeting their tax obligations. Not filing taxes means not submitting required tax documents by the deadline, leading to penalties and potential legal actions. Not paying taxes refers to having filed but not remitted owed taxes, resulting in penalties and interest on the unpaid amount.

That’s why the IRS keeps a close eye on transactions involving digital assets and is expanding its compliance efforts in the area. In fact, the tax agency considers digital asset compliance a priority for the 2024 fiscal year and recently hired outside experts to help. The worst part is that you might have to wait a bit longer to receive a tax refund while the IRS pulls your return to fix the mistake. “Simple mathematical errors are one of the top reasons for IRS audits.

What Happens if You Don’t File Your Taxes at All?

One is the American opportunity tax credit and the other is the lifetime learning credit. The taxpayer, their spouse or their dependent must have been a student enrolled at least half time for one academic period to qualify. The taxpayer may qualify for one of these credits even if they don’t owe any taxes. Form 8863, Education Credits is used to claim the credit when filing the tax return. The process is straightforward, especially with free online filing options.

Third, not filing taxes can also lead to problems with your state tax authority. In some states, you may be required to file a tax return even if you don’t owe any taxes. Failing to file a tax return can lead to penalties and fines from the state tax authority. In most cases, income, filing status and age determine if a taxpayer must file a tax return. Other rules may apply if the taxpayer is self-employed or can be claimed as a dependent of someone else. The Interactive Tax Assistant can help someone determine if they the need to file a return.

Although the list is potentially endless, here are 10 common audit red flags that can boost the chances of your tax return being pulled aside for a second look. There’s no guarantee you’ll escape an audit with this information in hand, but you might be able to use it to keep the odds in your favor. And if your return is selected for an audit, you might be more at ease knowing that it wasn’t your reasons for not filing taxes fault. If you’ve started a new business during the year and don’t file a return for your business income, the IRS will send you a notice asking for a return, Brown said.

Someone on our team will connect you with a financial professional in our network holding the correct designation and expertise. Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications. Our work has been directly cited by organizations including Entrepreneur, Business Insider, Investopedia, Forbes, CNBC, and many others. Tax filing is the cornerstone of modern societies, sustaining crucial public services and societal well-being. File 100% free when you switch to TurboTax and do your own taxes on the TurboTax app by 2/18.

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• In cases where an overt act of evasion occurred, willful failure to file may be elevated to a felony under IRC 7201.
• Tax software can help reduce the risk of errors and give you confidence in the accuracy of your return.
• Go ahead and file to avoid a “failure to file” penalty, then come to an agreement with your ex and file an amended return if necessary.
• And finally, if your income is below the taxable limit, you may not need to file a tax return.
• The IRS uses the federal short-term rate (which fluctuates), plus 3%, to determine how much interest you’ll owe on your unpaid taxes.
• The key for self-employed taxpayers is to keep extremely accurate records of your income and expenses.

If you haven’t filed an original return within 3 years of its due date, you’ve likely missed the statute of limitations entitling you to the chance of claiming that refund. For cases where income is underreported by more than 25%, the statute of limitations extends to six years from the filing date. If fraud is suspected, there is no statute of limitations, and the IRS can pursue criminal charges or civil penalties indefinitely.