I just want to give that final reminder to people who haven’t yet filed their 2019 individual tax returns, that those tax returns are actually due in about a week—or October 15, 2020.
So … middle of October here, and we’re finalizing now last year, right?
2019 returns.
So people still have not yet filed, or there are people out there …?
There is. There’s quite a few people that haven’t filed, actually.
Ok, so … why?
So, you know, one of the reasons is that they may be waiting for an initial piece of information. Say they have a business that they’re a part of and they’re waiting for that Form K-1 or that business return to be completed. And sometimes it’s just because they’re paralyzed; they don’t know what to do because they really haven’t started anything, they don’t have any good records … they just don’t know what to do.
So let’s talk about that: If people are waiting for information, what should they do?
Yes, and we’re running into these cases where sometimes the business return just isn’t done yet, for whatever reason. Our advice to clients is: File the return, either without the information or use an estimate. Because in either case, you can always go back and amend. It’s always better to file the return and amend it then file your return late or not at all.
So what happens if someone just doesn’t file on time?
The biggest thing is the late filing penalties, and that essentially is five percent of the taxes owed every month (is the penalty), up to about 25 percent. So if you owe, you know, $10,000, your penalty is $2,500. So it could be real money. And if you file the return more than 60 days late, then even if you don’t owe any tax it’s still about $135 penalty. So you want to get those tax returns filed.
So what if they cannot pay the tax that they owe? What happens to those individuals?
Sometimes that’s why people don’t file their return, either, is just because they’re unable to pay it so they figure, “Why file it if I can’t pay it?” Well, what we tell these clients and other people is: Just file the return, even if you can’t make the payment. Pay what you can and then contact the IRS. Set up that payment schedule, because they may be able to help reduce some of the penalties that you have by paying it late by setting up a plan with them. So be proactive; don’t wait for the IRS to call you.
So will someone get a call from the IRS if they don’t file? Is it up to the IRS to contact them?
It really is. So what will happen is—you know, you probably won’t get a call from the IRS is most cases—but you will get a letter. And the problem is, is that letter probably won’t come for (somewhere between) 18 to 24 months from now. Because what the IRS is doing is they’re accumulating all this information, and the information’s in their system. They try and now match that with a return that’s filed … well, they don’t see a return.
So if I understand correctly: Again, there’s five percent owed every month (up to 25) percent, but they may not contact you for 18 to 24 months later, so essentially it’s going to be guaranteed 25 percent.
Correct. If you’re not on top of it, and you don’t file your return, it will be a 25 percent penalty on top of that. So, you know, that’s why what you want to do is you just want to make sure that that return gets filed.
So what happens if I should have gotten a refund but I don’t file?
And there’s people like that. It’s surprising. So we have filed returns for the last five years for some people, just because, you know, you have to file a return. And some of those years there are actually refunds. If it’s three years after you should have filed the return, even though you should get a refund, the IRS won’t pay it to you. You essentially lose that refund. They will not pay a refund three years after the due date. So you want to really make sure that—especially if you get a refund—get those returns filed, because otherwise you might lose money on this deal on top of any kind of penalties and interest.
Sign Up to Receive Email Updates
Be sure you’re getting the latest insights as legislative developments occur. We’re here for you with tax insights and business resources.
Sign Up Now
We Are Here for You
Contact us to talk through the challenges your business faces as you navigate through this unprecedented time. No doubt you’ll need help assessing cash flow and making smart projections, reviewing loan covenants, lining up bridge financing, talking to banks and lenders, figuring out staff loads and employee counts, handling disrupted supply chains, and so much more.
Read An Important Message from Our Firm
