Saturday, 26 November 2022

How to File Missed Tax Returns and Avoid Higher Penalties

01 Nov

News flash: The deadline filing income tax returns (ITR) has come and gone. It was 15th April 2019, by the way, and April 17 for residents of Massachusetts and Maine. If, however, by any lucky chance, you filed for a tax extension, then you have until the 15th of October 2019 to meet the taxman requirements. If you are reading this, I highly suspect that you missed the ITR deadline and did not file for a tax extension. No need to panic though, we can try and salvage the situation by showing you .

Whether you can pay your taxes in full or not, you are supposed to file your returns. Missing the deadline will lead to the IRS slapping you with a penalty for late filing. And, if you missed the deadline because you could not pay in full or due to some other reasons, then plan on filing ASAP before that penalty start pilling up.


For starters, you can consult a tax professional for any advice on your returns and filing. Tax Defense, for example, has professionals waiting for people like you to get in touch. They can file the returns for you, help you find a solution if you can’t pay the IRS among other issues.

If for any reason you are up to doing the work yourself, ask your employer or your income taxpayer for your wage and income information. You can also fill in the 4506-T form or request transcripts of your tax returns. There is a box on line 8, check it.

Once you have all the information you need in place, get the online tax forms and instructions here and proceed to file your past due returns. Alternatively, you can order the tax forms by calling 1-800-Tax-Form (1-800-829-3676), and for TTY/TDD call 1-800-829-4059.

Reasons to File Missed Tax Returns Now

1. Say Goodbye to Accruing Penalties and Interests

If you owe IRS any funds and you forgot to file your returns, you might get the failure-to-pay penalty. With both the failure-to-pay and failure-to-file penalties, IRS will cap your penalties at 5% of your unpaid taxes. Per month!

2. A Chance to Claim your Refund

You and I both know that there is a lot you can do with a tax refund. While the IRS will not charge you any penalties, they are happy to keep that refund for you. The only way for you to get your refund is by filling the missed returns or offering an acceptable reason as to why you have not filed the missed return.

However, the refund is only claimable within a period of three years after the return due date. After that, your money becomes the property of the government. So, if you missed your 2018 returns due date, whose deadline was April 15, you have until 15 April 2022 to claim your refund. That is a long time to let your money lie around with the IRS while it could be working for you.

Read more on how your money can work for you.

3. Increase your Chances of Getting Loans

When applying for loans with financial institutions, brokers, and mortgagers among others, more often than not, you will be asked for copies of filed returns. Without your filed returns, you might miss opportunities of getting business loans, loans for higher education or federal aid, mortgages, or even refinancing loans. The list could go on, and the only thing standing between you and that loan is a form of filed returns.

4. And not Endangering your Social Security Benefits

For a self-employed person, failure to file federal income tax returns means that your earned self- income will not be reported to the Social Security Administration. That means that you will not receive any credits for that period for disability benefits or retirement.

What Happens When you Owe More than you can Pay?

Once you have filed your missed returns and you owe the IRS more than you can pay, you can request additional days to pay the amount in full. The IRS gives an additional 90-120 days. Within this period, you can call 800-829-1040 to pay or use the Online Payment Agreement application.

If you are unfortunate enough to have more than you can swallow at a go, the IRS might allow you to repay in installments. All you have to do is apply for a suitable repayment plan. Alternatively, there is an offer in compromise, which will give you a chance to pay your debts to the IRS less than what you owe.

About Penalty Relief

The good news to all the above bad news is that you might stand a chance of having your penalties waived or reduced. The catch, however, is convincing the IRS beyond a reasonable doubt why you did not file your ITR, did not pay your taxes when they were due, or failed to make a deposit.

So, if you have got a very good reason as to why you missed the deadline, this is your chance to have those penalties waived or reduced.

What are these Reasons?

  • You were not able to obtain the necessary records
  • Serious illness, death, incapacitation, or absence of the taxpayer or their immediate family member due to unavoidable circumstances.
  • Natural disasters, fire, casualty, or other disturbances
  • Another reason which proves that you did everything possible to meet the federal tax obligations but you did not manage.

From the above, it is clear that not being in a strong financial position to pay any due tax is not reason enough. Unless you can prove that the reason you did not have money to meet your obligation is tied to any of the above reasons.

About Substitute Returns

Another important thing to know is that there is a substitute return. This is when you do not file your returns voluntarily and the IRS files substitute returns on your behalf. It sounds like a good way to get you off the hook but in such a scenario, you cannot get credit for deductions and exemptions.

The IRS sends you a Notice of Deficiency (CP3219N) that proposes a tax assessment. This gives you ninety days to file your missed tax returns or a petition in the tax court. Failure to do either will lead to the processing of the proposed assessment.

A substitute return triggers a tax bill, which you have to pay, if this tax bill goes unpaid, it will trigger a collection process, which is a nasty place to be with the IRS. Why? Because it could involve the IRS levying your salary or wages, bank account, or even filing a notice of federal tax lien.

However, we will still advise you to go ahead and file the missed tax returns, even in the presence of the substitute returns by the IRS. The reason is that once you have filed your missed returns, you can take advantage of any exemptions, deductions, and credits you are entitled to. Once you have filed, the IRS will have no problems adjusting your account to show the correct figures.

How to Stay on Toes Next Tax Return Season

The next tax season should find you ready to file your 2019 ITR, pay your due taxes, and claim your tax refunds as early as possible. To do this, get your income report from your taxpayer or employer in advance. Then get in touch with professionals who will handle the business for you or help you throughout the taxing process. You can count on Turbo Tax, eFile, 1040, and Tax Defense Network.


Tags: tax


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