What Happens When You Don't File a Tax Return?

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When a person doesn't file their tax return, the IRS will not pursue criminal prosecution if the individual voluntarily files, or makes arrangements to file, before they are informed of criminal prosecution. Learn about penalties of interest that are calculated on the amount of taxes that are due with information from an independent CPA in this free video on filing tax returns.

Part of the Video Series: Tax Help
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Video Transcript

My name is Miranda Chook and I'm a CPA. This segment is about what happens when you don't file a tax return. Now let's hit the first stereotype which is that the IRS will send you to jail. Now there is a difference between tax fraud and not filing your taxes. Now we're talking about not filing your taxes here and according to the IRS's own statement on it's website "it is the longstanding practice of the IRS has been not to pursue criminal prosecution of individuals who fail to file their taxes provided they voluntarily file or make arrangements to file before they are informed of any kind of criminal prosecution. Now let's talk about some of the more common consequences of not filing. Of course, penalties of interest will be calculated on the amount of your taxes due. Secondly, the IRS may actually prepare a substitute return for you based on the copies of the W-2's and 1099's that they've received from the payers as well. Now once they've calculated that amount, they will start the collection process which may include garnishing your wages, garnishing your bank account and sometimes putting a lien on any property you own like your home. You may want, this is another reason why you may want to hurry up and file on your own because you may find that your tax liability will actually be will actually be lower because you have information on deductions and expenses that you can deduct but the IRS won't have so if your tax liability does turn out to be lower, the IRS will generally adjust your account to that lower amount. Now when you file and you find that you have a tax refund coming, unfortunately, the IRS does not pay you interest on that portion. Again, penalties may accrue and it's anywhere from f...five percent to a maximum of twenty-five percent for filling late but you also have a late payment penalty that's anywhere from half a percent to a maximum of twenty-five percent on that unpaid amount. Now keep in mind, the sooner you can pay that off the lower those penalties and interest because even if you're making installment payments, penalties and interests still will be calculated on that unpaid portion. So you might want to think if a bank loan or maybe a credit card cash advance may have a lower rate, that may be something easier to pay off than an IRS installment program so please contact a an experience financial adviser to see how this effects your specific circumstances.

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