Filing your taxes can seem like an overwhelming task. The forms are confusing, and the math can be challenging.
In some cases, it can seem easier to simply not file. Often, it looks like there are no immediate consequences. However, there can be serious consequences when you do not file your taxes.
This is what you should know if there are one or more years you did not file your taxes.
Penalties, but with limits
There are penalties if you owe a balance to the IRS and you are late filing your taxes. Initially, the penalty is five percent, but there is a cap when the penalty amount reaches 25 percent of the total amount of unpaid taxes.
On the other hand, if your tax return results in a refund, you may end up with a reduced refund. If you wait too long, you could miss out on your refund entirely.
If you do not file for several years, these penalties can add up and lead to tax evasion charges.
Statutes of limitations
Unfortunately, when it comes to taxes, there is a time limit to claim a refund, but the time limit does not work the other way around. There is currently no limit on how far back the IRS can look to collect taxes.
I’m ready to file; now what?
In some cases, the IRS will file a Substitution for Return (SFR) for you. When the IRS does this, it often leaves out exemptions and other deductions. If this form was filed, you will likely need to refile your return for that year since the SFR probably did not include items that would be for your benefit.
If you can file your taxes before the IRS makes a demand based on an SFR, you may be able to protect your ability to get loans and receive Social Security benefits.
It is essential to note that there is no time limit to file a late return. While you may run out of time to receive any refund you are owed, you can check filing the late return off of your list.