One common question that clients often ask is whether they should file their delinquent tax returns if they can’t afford to pay the taxes owed. The answer is always yes. It is better to file your tax return and work out a payment plan with the IRS than to not file at all.
The Consequences of Not Filing a Tax Return
The penalty for failing to file a tax return is 5% per month of the balance owed, up to a maximum of 25% after five months. In contrast, the penalty for failing to pay is only a half a percent per month. This means that the IRS is more interested in having you file your return than in collecting the taxes owed immediately.
Furthermore, if you fail to file a return, the IRS may eventually file an SFR (substitute for return) on your behalf, which will include no deductions and could result in a larger tax bill than if you had filed a return yourself.
Negotiating Payment Plans with the IRS
If you can’t afford to pay your taxes in full, you can negotiate a payment plan or even a deferred payment plan with the IRS. But to do this, you must first file your tax return.
To avoid problems when filing delinquent returns, it is essential to confirm the income reported to the IRS. You can do this by requesting a wage and income transcript if you are an individual, or an ERPTA report if you have a business. This will show you all the 1099s that have been reported to the IRS regarding your income or business.
Contacting a Tax Attorney for Help
If you have missing or delinquent tax returns, it is best to file them as soon as possible based on the best information available. You can also contact the IRS to negotiate a payment plan or hardship if needed. It’s always better to take action sooner rather than later.
If you need help filing delinquent returns or negotiating with the IRS, it’s always best to contact a tax attorney who can guide you through the process and provide legal representation if needed.
In conclusion, always file your tax return, even if you can’t afford to pay it. Contact the IRS to negotiate a payment plan and confirm reported income to avoid problems when filing delinquent returns. If you need legal representation or assistance, don’t hesitate to contact a tax attorney for help.