Risks and Advantages of Filing Past Due Returns
In addition to penalties and interest, back taxes may be subject to freezing. Hiring an experienced tax attorney to negotiate a reduced penalty or payment schedule is best. Here are the risks and advantages of Filing Past Due Returns.
Amended returns are more likely to be scrutinized.
While amending your tax return may seem like an option that could save you some time and money, there are several ways to ensure that your filing status remains accurate. First, the IRS will likely scrutinize amended returns if you make inevitable mistakes. Mistakes on your tax return can be kicked out of the electronic processing system and rerouted. Some errors are not easily corrected and will require human intervention. Sometimes, individuals will add up their business expenses and write them off differently than what’s true. If your accountant has a hard time understanding the details of your return, consider hiring a CPA. Amended returns will almost always be scrutinized closely, and if you make a mistake that results in a significant decrease in tax, they’ll most likely send you back for a more detailed review.
Amending your return does not increase your audit risk, but the IRS can request supporting documentation if you’ve changed something on your tax return. Because of this, you’re more likely to be scrutinized than a complete audit. IRS representatives don’t automatically accept amended returns, so you shouldn’t worry. However, you should have your supporting documents handy.
IRS can freeze refunds if you owe back taxes
The IRS can freeze your refund to collect the amount if you have back taxes. It can do this when it has conducted an audit of your past tax returns. Even if you have entered into an installment agreement to pay the amount you owe, the IRS can still take your refund to collect the tax. In such situations, you should get legal assistance to avoid the freeze.
The IRS is obligated to investigate all claims of fraud and will freeze refunds if it suspects fraud. This is to stop billions of dollars in false refunds from being paid to criminals. A random survey of those affected found that 80 percent of the people eventually received their refund. However, the average person had to wait for eight months or more to receive the money during that time.
Limiting interest charges
There are several ways to limit interest charges when filing past-due returns. First, filing an extension before the due date can reduce the penalty. Applying for an extension also extends the payment date, so pay as much as possible by the original date. Failure to pay fines is based on the amount of tax owed and maybe up to half a percent per month.
It is important to note that if you file a return late, interest is calculated based on the balance you owe between the time you filed your return and the day you paid it. Therefore, even if you filed an extension, interest would still accrue from the date you filed your return, so it is best to file a return on time if you owe a significant amount. But if you owe more than you can afford to pay, file a return and request an Installment Agreement.
Limiting late payment penalties
There are two types of late payment penalties when filing past-due tax returns. If you fail to pay on time, you will be subject to the 0.5 percent per month penalty. If you can show reasonable cause for delay, you will still be responsible for interest and late fees.
You can limit late payment penalties by filing your tax return as soon as possible, even if you do not owe enough money. By filing as quickly as possible, you can limit late payment penalties and the interest you will be charged. In the meantime, you can use an extension to file and pay. In addition, you may want to consider getting a loan or using a debit card to make the payment, as it is often less costly than owing the IRS.
