Reasons to Address Unfiled Tax Returns Now
Nov. 28, 2024
Failing to file tax returns can lead to a myriad of complications, from financial penalties to legal troubles. For many individuals and businesses, the prospect of confronting unfiled tax returns can be overwhelming.
However, addressing this issue proactively is crucial for helping with financial stability and peace of mind. Read on to explore why it’s essential to tackle unfiled tax returns as soon as possible.
Avoid Any Accumulating Penalties and Interest
One of the most pressing reasons to address unfiled tax returns is to avoid accumulating penalties and interest. The IRS imposes penalties for failing to file and for failing to pay taxes owed. These penalties can add up quickly, making the total amount owed significantly larger over time.
Failure-to-File Penalty
According to the IRS, the failure-to-file penalty is typically 5% of the unpaid tax for each month that the return is late, up to a maximum of 25%. For example, if you owe $1,000 and are three months late, you could incur a penalty of $150, in addition to the interest on the unpaid tax.
Failure-to-Pay Penalty
In addition to the failure-to-file penalty, there's also a failure-to-pay penalty of 0.5% of the unpaid taxes for each month the tax remains unpaid. This penalty can be reduced or eliminated if you pay your taxes within a certain timeframe, but it still compounds the total amount owed.
Interest Accumulation
The IRS also charges interest on unpaid tax amounts, which compounds daily. The interest rate is determined quarterly and can vary, but it often adds an additional burden to taxpayers who delay addressing their unfiled returns.
Prevent Legal Consequences
Unfiled tax returns can lead to severe legal consequences. The IRS has the authority to pursue collections aggressively, which may result in various legal actions.
Audits and Investigations
If you've unfiled returns, the IRS may flag your account for an audit. While the IRS typically audits returns that have been filed, the existence of unfiled returns can raise red flags, leading to scrutiny of your financial affairs.
Tax Liens and Levies
In more severe cases, the IRS can impose tax liens against your property or levy your bank accounts. A tax lien is a legal claim against your property when you fail to pay a tax debt. This can severely impact your credit score and hinder your ability to secure loans or sell your property.
Criminal Charges
While rare, failing to file tax returns can lead to criminal charges for tax evasion. The IRS takes tax fraud seriously, and individuals found guilty of willful failure to file can face significant fines and even imprisonment.
Reclaim Your Lost Refunds
Another compelling reason to address unfiled tax returns is the potential to reclaim lost refunds. Many taxpayers may not realize that if they're owed a refund from previous years, they must file a return to receive it.
Statute of Limitations
The IRS has a three-year statute of limitations for claiming a refund. If you've unfiled returns from the past three years and are due a refund, you risk losing that money if you don't file. For example, if you didn't file a return in 2021 and were owed a refund, you'll lose that refund if you don't file by the end of 2024.
Missing Out on Credits
Filing unfiled returns can also allow you to claim tax credits that you may have missed. Credits such as the Earned Income Tax Credit (EITC) can significantly reduce your tax liability and, in some cases, result in a refund that exceeds the amount you originally owed.
Improve Your Financial Health
Addressing unfiled tax returns can significantly improve your overall financial health. By taking control of your tax situation, you can establish a clearer picture of your financial standing and work toward better financial decisions.
Budgeting and Planning
Filing your tax returns helps you understand your financial situation more clearly, including income, expenses, and deductions. This understanding allows for better budgeting and financial planning, ultimately contributing to improved financial health.
Access to Financial Products
Many financial institutions require proof of income and tax filings when applying for loans or mortgages. Unfiled tax returns can hinder your ability to secure financing for a home, car, or business, limiting your options for growth and investment.
Reach Some Peace of Mind
One of the most overlooked benefits of addressing unfiled tax returns is the peace of mind that comes with resolving tax issues. Living with the stress of unfiled returns can weigh heavily on individuals, affecting their mental health and overall well-being.
Reducing Anxiety
Addressing your tax obligations can alleviate anxiety associated with potential audits, penalties, and other repercussions. Knowing that you're in compliance with tax laws provides a sense of security that can enhance your overall quality of life.
Eliminating Fear of the IRS
Many people fear receiving communication from the IRS regarding unfiled returns. By taking action and addressing these returns, you can eliminate the fear and uncertainty that comes with unresolved tax issues.
Build a Better Relationship With the IRS
Proactively addressing unfiled tax returns can help establish a better relationship with the IRS. When you demonstrate a willingness to comply with tax laws, the IRS may be more inclined to work with you on any issues that arise in the future.
Potential for Leniency
The IRS is often more lenient with taxpayers who come forward voluntarily to rectify their unfiled returns. This can include reduced penalties or payment plans for individuals who show a genuine commitment to resolving their tax obligations.
Open Communication
By addressing your tax situation, you create an opportunity for open communication with the IRS. This can help clarify any misunderstandings and provide a more favorable outcome for your case.
Simplify Future Tax Filing
Addressing unfiled tax returns now can simplify your future tax filing processes. By getting your tax situation in order, you set the stage for smoother tax seasons in the years to come.
Establishing a Routine
Once you've filed your outstanding returns, you can establish a routine for future tax filings. This proactive approach can help you stay organized and avoid falling behind in subsequent years.
Accurate Records
Filing all outstanding returns allows you to maintain accurate records of your financial situation. This will make future tax filings easier, as you’ll have a clear picture of your income, deductions, and credits.
Prepare for Life Changes
Life changes, such as marriage, divorce, the birth of a child, or a career shift, often impact tax situations. Addressing unfiled tax returns now can prepare you for these changes and their implications on your taxes.
Adjusting to New Financial Responsibilities
Life changes can lead to new financial responsibilities that may affect your tax obligations. By addressing unfiled returns, you can have a clearer understanding of your financial picture and plan accordingly for future tax implications.
Strategic Planning
Understanding your tax situation can help you make strategic decisions regarding life changes. For example, knowing your tax bracket can inform decisions about taking on new jobs, starting a business, or making significant purchases.
Protect Your Future
Finally, addressing unfiled tax returns is essential for protecting your financial future. The longer you delay, the more complications can arise, impacting your ability to achieve financial goals.
Establishing a Clean Slate
Filing your outstanding returns can help you establish a clean slate with the IRS. This fresh start allows you to move forward without the burden of past tax issues, enabling you to focus on building a stable financial future.
Long-Term Financial Planning
By addressing unfiled tax returns, you position yourself to engage in long-term financial planning without the looming threat of tax complications. This clarity can help you set and achieve financial goals, from saving for retirement to purchasing a home.
Take Advantage of Professional Help
If you find yourself overwhelmed by unfiled tax returns, seeking professional help can be beneficial. Tax professionals, such as CPAs or a tax attorney, can provide assistance in working through the challenges of tax law.
Experience With Tax Laws
Tax professionals are knowledgeable about the latest tax laws and regulations. They can guide you through the process of filing unfiled returns.
Representation in Case of Audits
If you face an audit or legal repercussions due to unfiled returns, a tax professional can represent you and help work through the process. Their experience can significantly reduce stress.
Contact a Tax Lawyer Today
The Law Office of Scott N. Tisevich, Esq is proud to serve the communities of Reno, Churchill County, Lyon County, Carson City, Storey County, Douglas County, and Las Vegas. If you're looking to address your unfiled tax returns, reach out to the acclaimed tax firm today.