File your Tax Return even if You Cannot Afford it
It is common to find taxpayers who do not file their tax returns because they feel they cannot afford to pay the taxes they would owe. Such incidences are especially prevalent in bankruptcy cases among those who file bankruptcy petitions. All bankruptcy petitioners must submit their most recent tax returns as part of their filing. But if you are tempted not to file your tax return because you believe you cannot afford your taxes, think again. Click here to read or watch more IRS Help resources.
It would be a mistake to skip filing taxes because you cannot afford the taxes or for any other reason for that matter. Failing to file your tax return by April 15 (or by the approved extension date), will result in a late filing penalty of 5% per month over and above the late payment penalty. Not paying your taxes will result in you being charged interest on your taxes but on the other hand, filing a return without paying your taxes will result in a late payment penalty of one half of 1% per month.
The IRS says that interest is charged on any unpaid tax from the due date of the return until the date when you pay the full amount owed. The interest rate is determined quarterly and is the federal short-term rate plus 3% and is compounded daily.
If you file a return but don’t pay all amounts shown as due on time, you will be charged a late payment penalty of one-half of 1% of the tax owed for each month, or part of a month, that the tax remains unpaid from the due date, until the tax is paid in full or the 25% maximum penalty is reached. Many people do not know that the rate does not stay the same. The one-half of 1% rate will increase to 1% if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy.
Also, the IRS says that if you owe tax and do not file your tax return by the deadline, the total penalty you are charged is usually 5% of the tax owed for each month or part of a month that your return is late, up to five months. If your return is more than 60 days late, the minimum penalty for late filing is $135 or 100% of the tax owed, whichever is less.
So make sure you still file your tax return even if you feel you cannot afford it. At the time of filing, do speak to the IRS about payment options. The IRS has ways you can pay your taxes in a way that you can afford.