There’s one week to go before the October 17th deadline to file your 2021 IRS Tax Return if you applied for the automatic 6-months extension. But what if you miss this deadline? What happens?
Well, the tax police are not going to bust down your door and haul you away to tax prison. And your first born won’t be ripped from your arms. You may incur interest and fees as financial penalties — but you might not.
THE 5% PER MONTH PENALTY IS THE BIGGEST
The penalties include the 5% per month non-filing penalty. That’s 5% on the amount of tax money that you owe, and the IRS can assess that penalty for up to the first five months that you fail to file your return. That is the biggest financial penalty you will face for not meeting the October 17th deadline with a six-months extension.
There are also other monthly penalties that are much smaller and they will continue even beyond the first five months if you don’t file your tax return. By the way, those monthly interest penalties increase as the Federal Reserve raises interest rates.
THE FAILURE TO FILE PENALTY HAS BEEN DROPPED BEFORE
But please note that for the tax years 2019 and 2020 the IRS waived the 5% per month failure to file penalty for those late filers who finally got those tax returns filed by this past September 30th. The IRS waived those penalties as part of its program to help taxpayers deal with the Covid Pandemic. However, there are no hints at this point that such a waiver will be applied to the 2021 tax year. So don’t count on this abatement to be available again.
IF YOU MISS OCTOBER 17TH FILE AS SOON AS YOU CAN TO MINIMIZE COSTS
Obviously if you miss the October 17th deadline, you want to file your taxes as soon as you can to minimize the interest and penalties you’ll be paying on the tax money you owe. Consult with your tax professional as soon as possible.
WHAT HAPPENS IF YOU DON’T FILE BUT DON’T OWE TAXES?
Aha! This is an important question. What happens if you don’t file a tax return — you miss the October 17th deadline — and you don’t owe any taxes? Well, there’s no penalty. The tax laws simply say that if you don’t owe tax money you do no have to file a tax return.
Let’s say it again: if you don’t owe taxes, you don’t have to file a tax return and there’s no penalty for not filing.
BUT WAIT — ARE YOU SURE?
But wait. Are you sure you don’t owe taxes? While it’s okay not to file when you don’t owe taxes, what if you’ve made a mistake in your numbers? What if you forgot about a 1099 or a W2G from a casino win? If the IRS says you actually do owe money you will get hit with interest and penalties for not filing. So, be really, really, really sure you don’t owe the IRS a dime before you decide not to file.
AND WHAT IF YOU ARE OWED A REFUND?
This is another Aha! moment. What if you don’t file because you don’t owe the IRS any money but the IRS owes you a refund?
It is very possible that you had withholding for a short term job or on a casino win but you didn’t earn enough money or win enough money to require you to file a tax return. In those cases you have to file a tax return to get that refund money. The IRS will not send the refund money to you automatically — and you have to file a tax return to get it.
Generally, you have three years to file a tax return to get your refund.
BILLIONS OF DOLLARS OF REFUNDS ARE HELD BY THE IRS
It is amazing how many billions of dollars of tax refund money that the IRS is holding for taxpayers who did not flle a tax return. Generally, there are about a million taxpayers each year who are owed refunds but do not file to get the money. Take a look at these totals from some recent years:
Tax Year 2015: $1.4 Billion
Tax Year 2016: $1.5-Billion
Tax Year 2017: $1.3-Billion
Tax Year 2018: $1.5-Billion
For tax years 2019, 2020 and 2021 we really don’t know how much the IRS is holding in refund money because the IRS is way behind in processing tax returns because of the shutdowns caused by the Covid Pandemic. More than 6-million tax returns for individuals still need to be processed by the IRS.
AN IMPORTANT REMINDER ABOUT FILING YOUR IRS TAX RETURN
Here’s an important reminder about filing your IRS tax return, and it is a simple reminder: file your return electronically. If you file electronically you will get right away a confirmation from the IRS that they have your tax return. And, the IRS says, they should be able to process your tax return and get your refund sent to you in three weeks or less.
One more reminder: have your refund sent to you using direct deposit into a bank account. Direct deposits can be processed quickly. Getting a paper check could add a couple of weeks or longer for processing your return.
FILING ALL YOUR RETURNS IS IMPORTANT FOR THE IRS FRESH START PROGRAM
Yeah, there is one more reason why you should file your tax return. If you have a problem with your IRS tax debt you might want to explore the IRS Fresh Start Initiative and the IRS Offer In Compromise Program. But in order to qualify for the IRS Fresh Start and the IRS Offer In Compromise Programs all tax returns must be filed.
We offer a free consultation about the IRS Fresh Start and the IRS Offer In Compromise Programs. Just give us a call and in 15 minutes or less we can tell you if you are eligible for the IRS Fresh Start. If you are not eligible we can discuss other options to resolve your IRS debt. The video below tells you how easy it is to have this free consultation.
Also, we are happy to discuss with you help for filing your tax return for 2021 and for previous years. We have the tax experts to get this done. Give us a call. There’s only a week remaining before the October 17th deadline.