Early filing numbers are measurably down this year, data security concerns are high, and IRS staffing is in disarray. But if you’re considering scrapping it all and “getting to it when you get to it,” here’s a tip: File your taxes. File an extension, if needed, but file. There are too many costly consequences for not doing so.
“Both do-it-yourselfers and tax professionals filed fewer early returns this year. The IRS data indicated a 5% drop in the number of e-filed returns from tax professionals in the first four weeks through Feb. 21,” reports Susan Troper of the Detroit Free Press.
Forbes’ Kelly Phillips Erb points out several theories about why this may have been (although no one really knows). Most prominently, with renewed IRS staffing cuts and hiring freezes and the Trump administration seemingly distracted in other ways, do taxpayers feel “that noncompliance will simply be met with a shrug”? Are we waiting for tax changes that could retroactively kick in? Are taxpayers nervous about potentially handing their data over to Elon Musk’s Department of Government Efficiency (DOGE) and what on Earth that might mean?
But here’s what you risk for not filing: While the IRS has only three years to audit a filed tax return, there is no time limit for auditing years in which a return was never filed. (Read between the lines: If you don’t file, the IRS under the next administration could happily audit you.) It’s also incredibly expensive not to file. The failure-to-file penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late, up to 25% of your unpaid taxes.
Plus, if you fail to file, the IRS can prepare and file a substitute return for you. That return will NOT include the deductions and credits you may be entitled to receive. You may also risk losing your refund, Social Security benefits, and your ability to obtain a home, business, or education loan due to potential liens and credit issues.
Filing taxes late is better than not filing at all, but it can also result in significant penalties and interest charges. Even if you can’t pay the full amount owed, filing on time and paying what you can helps minimize these added costs.
Other reasons to file on time include:
- Identity theft reduction: Criminals can’t file a fraudulent return using your information if you’ve already submitted your legitimate return.
- A faster refund: If you’re due a refund, filing on time means you’ll receive it sooner. It turns out that refunds so far this year are higher and are being sent faster than last year. With IRS layoffs expected to increase, the longer you wait, the longer it may take to get a refund.
- Better financial planning: This is crucial if you own a business, significant property, or assets. Not only does filing on time help protect your credit and finances, but it can help you more accurately plan, budget, and take advantage of any new tax breaks to come.
- A longer runway for support: “Industry experts across the country have already noticed that it’s getting harder to reach an IRS agent on the phone, putting their clients’ tax returns and problems inevitably on hold,” Kiplinger reports. Even some considered high-value collection cases, usually assigned a one-point-of-contact revenue officer, report their communication attempts are going unanswered.
Filing an extension is an option if you’re still unclear on your tax standing. It can help you avoid the penalties and drawbacks of being a non-filer. However, it’s still important to try to estimate and pay what you believe you’ll owe in taxes to avoid unnecessary late-payment penalties and interest.
What if retroactive tax changes occur after you file? You can file an amended return within three years after the date you filed your original return or within two years after the date you paid the tax, whichever is later. Feel free to contact us with questions.