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What happens if you don’t file your taxes for three years?

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More than 7 million Americans don’t file their taxes on time each year. So if your business is one of them, you’re not alone.

There could be a lot of reasons why you didn’t file your federal income taxes on time for the last three years. There was no doubt that the pandemic caused a lot of problems. Here’s the good news: If you catch up quickly, skipping a few years may not hurt your business’s finances as much as if you didn’t file for five or ten years. But you could deal with much worse problems if you wait too long.

how is not filing your taxes different from not paying your taxes for three years?

The only difference between filing late and paying late is how much you’ll have to pay in fees. The amount of your penalty will depend on how much tax you owe and how late you file. Let’s look more closely.

there are fines for not filing taxes

If you owe taxes and don’t file on time, you’ll have to pay the failure-to-file penalty. Every month that your tax return is late, you will be charged 5% of the taxes you didn’t pay. So that the total doesn’t keep going up, the IRS puts a cap on the tax penalty at 25%. If you file your taxes more than 60 days late, you must pay a minimum fine of $435 or 100% of the unpaid tax, whichever is less.

there are penalties for not paying taxes

Even though this late payment penalty is much more minor, you may still have to pay a lot. The IRS will charge you 0.5% for each month you don’t pay your taxes, up to a maximum of 25%, until you pay off your tax bill. The IRS also charges interest for taxes that aren’t paid on time, which is equal to the federal short-term rate plus 3%.

what happens if you don’t file for three years?

If you don’t pay your taxes, you could face more than just fines after three years. In addition to the above penalties, the IRS can also: 

  • Put a hold on your wages or bank account. This can lead to wages and other income is taken from the person.
  • Send in a notice of a federal tax lien, which can make it harder for you to borrow or use your credit.
  • Put a lien on your property, which gives them a say in any sale of your property or assets and lets them take the money from the sale to pay the taxes you owe.
  • You will be charged with tax evasion if you don’t pay your taxes on purpose. You could get fined up to $250,000 or even go to jail if things get terrible.
  • Revoke your passport for a tax debt over $50,000.
  • Use your tax refund to pay off your debts.
  • But remember that you can’t get a tax refund after three years have passed since the date your income tax return was due. You won’t get credit on your account for the refund, nor will you be able to use it on a future return. But generally, if you don’t pay your taxes for three years, it will be easier to fix than if you don’t pay for five or ten years. Not only will it be much easier to get your books back in order, but you’ll also owe less in fees and back taxes.
  • Usually, a penalty for failing to file a tax return costs ten times as much as a penalty for failing to pay. So, even if you know you can’t pay the total amount of taxes you owe, you should still file as soon as possible. 
  • You might be surprised by how many ways the IRS gives you to pay back taxes. You can ask the government agency online for a payment plan that lets you pay off your debt in monthly installments. Some taxpayers may be able to pay off their debt through an offer in compromise or a payment plan. You could also ask for a penalty abatement, which lets you avoid paying the penalty if you file or pay your taxes late or make a mistake.

you should get your books and tax records in order after three years

Keeping accurate books is the only way to make sure that your tax records with the IRS are up-to-date. Our Bench Retro team can quickly finish your bookkeeping from previous years, even if some of the documents need to be clarified or included, and find every tax deduction so you only pay the IRS what you owe.

With the Paycheck Protection Program (PPP) Loans Small Business Resource Hub, we helped tens of thousands of small businesses like yours through tough times during COVID-19. It tells you about the SBA’s Paycheck Protection Program loan, how it works, who is eligible, how to apply, and more.

in conclusion

You are not alone if your small business taxes are three years late because of anything. As long as you have the right help, getting your taxes done doesn’t have to be too stressful.

Small business owners behind their taxes can get help from the IRS through many programs. If you owe a lot of money or have a complicated tax return, it’s best to talk to a CPA or tax professional (like the ones at  Countick to figure out which program is best for you. Our bookkeeping and tax experts can help you catch up on your back taxes, fill out your tax forms, and get back in good standing with the IRS.

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