I just came upon some data on the US Census Bureau website that was both exciting and concerning. I suppose this will be of interest to Charlotte business owners who may be facing tax issues:
(Here is the page from which this is taken.)
This indicates that in 2020, there was a significant increase in the number of new business beginnings. I'm not sure what the data for small businesses in Gastonia looks like, but I'm guessing it's similar.
That's extremely encouraging... more and more people are understanding that owning a business can be a great way to achieve financial independence.
It's troubling because, with the current rate of business failure that we've witnessed — well, let's just say that I expect our tax problem resolution business to get a lot busier in the coming years.
That's why it's a good idea for folks in Charlotte who have IRS debt or an unfiled tax return to schedule an appointment with us RIGHT NOW, before things become even busier...
https://calendly.com/saragonzalez
However, today's Note is about filing taxes. It's tax season, as you're probably aware.
Unfortunately, even if you don't owe any taxes that year, failing to file a tax return can result in complications. That is, of course, the situation if you owe money in taxes. Not only may the federal government cause you problems, but each state has its own set of rules, and states occasionally have powers that go beyond those of the federal government.
I'd like to share both good and terrible news with my Charlotte readers regarding all of this...
Starting on the lighter side — if you don’t owe any taxes — here are some negative consequences of an unfiled tax returns …
You Didn't Get Your Tax Refund
Simply put, if you are due a refund but do not file, you will not receive it. This is true for both the federal government and most states that have an income tax. You have three years to file your federal return, after which you will no longer be eligible for a refund.
Lose Out On Carrying Over Losses, Business Owners
The IRS permits you to carry forward losses from your business or investments to offset revenues in future years. You can't roll losses forward if you don't submit a return in the year the loss arises.
It's possible that you'll overlook refundable tax credits.
If you qualify for a tax credit, such as the Earned Income Tax Credit (EITC), you must file a return in order to get it. This is a refundable credit that puts money in your pocket (and is still available under the new tax reform regime). You will lose the tax credit if you do not file.
The Internal Revenue Service (IRS) may file a return on your behalf — without your knowledge.
When you fail to file a tax return, the IRS may fill out a substitute federal return (SFR) on your behalf. This return includes data from W2s, 1099s, and other forms sent to the IRS by your employer, bank, or other entities. The SFR typically has just one exemption, no dependents, and the standard deduction.
An IRS-prepared SFR will show a higher tax liability than if you filed yourself if you qualify for more than one exemption, have dependents, or itemise instead of taking the standard deduction. You might not have filed because you thought you didn't owe any taxes... However, under the SFR that the IRS files on your behalf, you DO owe tax, and some of the worst consequences that I'll discuss below begin to take effect.
The Audit Timer Doesn't Start
The IRS has three years to audit your tax return after you file it. The statute of limitations kicks in after that, and the agency can no longer audit the return. If the IRS prepares an SFR for you, it is subject to audit at any time. If you file, you will avoid the SFR. The IRS usually completes the SFR a few years after the due date.
It's possible that you won't be able to include taxes in your bankruptcy.
You must be current on your tax filing obligations to qualify for both Chapter 7 and Chapter 13 bankruptcy. In most circumstances, you must have submitted Chapter 7 taxes for the previous two years and Chapter 13 returns for the previous four years.
Having Issues Obtaining Loans
Loans are far more difficult to obtain if you do not file a tax return. Financial institutions will typically request copies of filed tax returns when you apply for a mortgage, personal loan, business loan, or loan for higher education.
Here’s what can happen if you DO owe tax and don’t file your return …
1) Penalties unique to each offence
If you owe taxes and fail to file your Federal tax return by the due date, you will be subject to a particular "failure-to-file" penalty. For each month you don't file, you'll be charged 5% of the balance. The "good" news is that this penalty is capped at 25%. The lesser of $205 or 100% of your tax payable is the minimum penalty if you file at least 60 days late.
2) The Possibility of Imprisonment
Although jail time is uncommon, it is possible. For failing to file your return, you might risk a year in prison and a fine of up to $25,000 under federal law. If you conduct fraud, the sanctions are significantly worse. You can't go to jail only for not paying your taxes, thankfully. In most cases, jail term is imposed for failure to file or for evading taxes on intent.
3) Tax Liens Posted in Public
When the IRS files a public document called a "Notice of a Public Tax Lien," it is known as a "Notice of a Public Tax Lien." As a result, your tax debt appears on your credit record. This has a negative influence on your credit and puts you in the crosshairs of a variety of unscrupulous marketers.
4) Wage Suspension
When the IRS contacts your employer to have wages withdrawn from your paycheck to pay an IRS tax debt, this is known as IRS wage garnishment.
5) Levies on banks
The IRS has the authority to levy your bank account by contacting financial institutions or banks with which you do business.
There are a couple more possibilities, but I'll spare you the more unpleasant ones.
To be honest, you're reading this, so it's time for some good news.
In a nutshell, you've got Kohari & Gonzalez PLLC on your side. IN OUR GAME, THERE IS NO SHAME. This means you can share your sorrows and faults with us, and there will be no judgement. Even better, with a little experienced assistance in your corner, we can help you avoid ALL of these penalties.
Warmly,
Sara Gonzalez
https://calendly.com/saragonzalez
Kohari & Gonzalez PLLC
