What happens if you skip filing taxes for a year? By Admin - March 12, 2020 Last Updated at: Jan 22, 2021 4341 The due date for filing the Income Tax Return (ITR) for the financial year 2019-2020 for the general category of taxpayers has been extended till 31st December 2020 as of now. In case you fail to submit your ITR by the due date, you can still file it by the last date, which is 31st March 2021. In case you fail to submit your current ITR by the due date, you can still do so by 31st March 2021 but you lose your right to carry forward any losses to set off against the income of subsequent years. Every individual should contribute something to the nation. Taxes are a way to contribute a revenue of ours indirectly to the society which benefits you, your family and your community. When you are an earning member (exceptions apply), it is your responsibility to pay taxes according to your income. Each time when we skip filing taxes, we are answerable to the tax collectors/officers. If you run a small business, then we have to pay the tax every quarter. It is always better to file taxes earlier. If we don’t file the taxes, then we must eventually submit a substitute return and face all the penalties which covers the interests too. This applies if you fail to pay the tax accidentally as well. Tax Documents Tax documents such as 1099 forms which are generated by the client or vendors are sent to your businesses by the IRS. The IRS department keeps all these forms with other tax forms of the business documents. If we fail to file the tax return, then the IRS department will provide you with proofs and will automatically generate taxable income which however sets up a red flag for your business. File your income tax now Substitute Returns If we don’t file taxes, then the IRS department would take actions by ultimately generating a return on behalf of you. The IRS department may not favour your business credits, expenses and deductions which might come up with a higher tax burden. If we pay and receive on substitute returns, then the IRS department would substitute the return and then helps to file your own taxes by replacing the substitute. But the owner still owes the penalties and interest on the tax department. Reach to the following link to know about Income Tax Notice Penalties and Interest The two most common penalties we face during the skipping of taxes are the failure to notice the penalty and the failure to pay the penalty. According to the IRS department, if we fail to pay the tax then it is calculated as 5 percent of your taxes due every month and this may exceed to 25 percent of your tax liability. Suppose if the failure to pay penalty is half of 1 percent of the total tax liability then each month it should not exceed to 25 per cent of the tax burden. If the same penalty is done in the same month the failure of penalty may be reduced by the failure to pay penalty every month. After 2 months of failing to file the minimum penalty would be 100 per cent of the total tax. Besides, the IRS department may also increase the interest and that becomes a tax burden. Collection Process If the failing of taxes are late after the penalty, the collection process begins. Then the IRS department offers an instalment plan to pay all the penalties and interest that has been a tax burden over a specific period. If we don’t set up an instalment plan or pay the bill within the particular time then the IRS department would start the collection process and take the money from you. The IRS department uses banks to levies, garnishments and federal tax against property and collect tax on all that which you owe. Additional Consequences If we fail to pay the tax returns that means we cannot get the refund back. The government has ruled that we have 3 years to file all the tax returns and get refund back. If a self-employed taxpayer fails to pay taxes, then he/she will not get the necessary credits towards social security or disability benefits. The IRS department does not routinely prosecute an individual who fails to file the tax. If they are being honest in attempting then they may rectify the situation soon. The taxpayers who continually fail to file the tax by not concerning the law, then they might face criminal penalties. The longer you wait, the more serious the consequences will become If once the IRS department determines that you should file or pay all the tax returns then we have to do it. Then there would be a hearing from them. You will later receive a notification letter from the IRS department on requesting you to pay the tax or you will be penalized for not filing the returns. The IRS department may also create a return from you. If suppose you are an employee, then the IRS department may create a tax return showing all your wages. The IRS department does not know about any deductions or tax benefits that we may deserve. They know only about your income unless we tell them about anything. If not, then you may end up paying penalties or a lot more tax returns. If the IRS department does not hear from your side after you been contacted, then get ready to face serious actions. You will be alerted by the banks you are associated with. They may also put a lien against your properties have a keen observation on all your wages. Indeed, your interests and penalties will get piled up. Prepare yourself for the worst if you fail to pay taxes.