10 Steps to Take if You Didn't File a Tax Return

The 2021 tax deadline has come and gone, and you didn't file your return. The IRS probably isn't going to put out a warrant for your arrest unless you've made avoiding taxes a long-standing habit. But you could face penalties. You could also miss out on the latest stimulus check if you didn't file tax returns in 2018 or 2019 and you didn't fill out the nonfilers form on the IRS website.

It's too late to request a tax extension, but there are still steps you can take to get back in the government's good graces. Here's how to get started.

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Not everyone who fails to file a tax return gets in trouble with the IRS. If you earned less than the standard deduction for your tax filing status during 2020, you don't actually have to file taxes and you won't owe any penalties if you do file late.

But even if you don't need to file a return, sometimes it's smart to do so anyway. Tax credits can reduce your tax liability below zero, resulting in a refund for you. If you qualify for any of these, like the Child Tax Credit or the Earned Income Tax Credit, filing a tax return is the only way to claim this money.

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It's too late to file a six-month tax extension now that the May 15 tax deadline has passed. But you may still qualify for a special tax extension if you live in an area that experienced a natural disaster.

If you do qualify for one of these special extensions, check with the IRS to figure out when you need to file your taxes by, and do your best to get your return in by that date to avoid penalties.

The IRS may be willing to cut you some slack if you have a good reason for not filing your taxes on time. If your house burned down, you became seriously ill, or you were unable to obtain important tax documents for some reason, you may be able to avoid paying penalties.

You must fill out a Claim for Refund and Request for Abatement explaining your reasons for not filing your return. The IRS will review it and make a ruling. If it decides you had a legitimate reason for not filing your taxes yet, it'll waive your penalties.

The IRS will slap you with failure-to-file and failure-to-pay penalties if you don't file a return when you owe taxes. The failure-to-file penalty goes up by 5% of your unpaid tax bill for every month you fail to file your return. It's capped at 25% of your unpaid taxes. The failure-to-pay penalty starts at 0.5% of the unpaid amount and increases by 0.5% for every month your balance remains outstanding. It's also capped at 25% of your unpaid taxes. The two penalties combined are capped at 47.5% of your tax bill. With both penalties, your tax bill accrues interest daily.

You probably won't avoid taxes and penalties completely if you failed to file your taxes by the due date. But filing as soon as possible can help minimize the penalties you owe. That said, don't rush through your taxes, either. Take time to ensure everything in it is accurate. Otherwise, the IRS could audit you.

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If your adjusted gross income (AGI) for 2020 was $72,000 or less, you can file your taxes for free. You'll still owe any outstanding tax debt plus penalties, but at least you won't have to pay to file your taxes on top of all that.

Many tax preparation software offer free federal tax filing to those who qualify, and some offer free state tax filing as well. Not all tax software permits free filing for all taxpayers, though, even if your AGI is under $72,000. Look into the details of your tax software's free file option to see if you qualify.

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Those with complicated taxes or those who lack the time to file taxes on their own should consider hiring a tax professional to help them out. You'll have to pay for this service, but it takes the work out of your hands.

The IRS has a database of credentialed federal tax return preparers you can use to look up qualified tax professionals near you. Or you could ask family members or friends for recommendations.

You should pay as much of your tax bill as you can immediately, even if it's less than the full amount. The failure-to-pay penalty applies to your full outstanding balance, but if you pay 50% of your tax bill right away, the penalty going forward will only consider the remaining 50% that's outstanding.

Putting off paying taxes until you can pay your balance in full is likely only going to lead to more penalties, which are just going to make it more difficult for you to pay what you owe.

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One option if you can't pay your full balance right away is to set up a payment plan with the IRS. You and the IRS work together to come up with an agreement that suits you. It usually involves you paying a set amount each month until your tax bill is fully paid off. If you do this, you won't accrue any more failure-to-pay penalties, but you'll still owe any penalties you've earned up to the point where your payment plan is accepted.

Another option is an offer in compromise. This is where you tell the IRS how much you can afford to pay. It will review your offer and, if it approves, you can settle your tax debt for less than what you actually owe.

Once you've filed your tax return, whether you did it yourself or used a tax professional, follow up to ensure it's filed correctly. You can do this by making an account on the IRS website, calling the IRS directly, or looking for email updates from your tax filing software.

If you submitted your tax return by mail, you can send it via certified mail so you're notified when the government has received it.

Once you're done with your 2020 taxes, you may not want to think about taxes again for a long time. But you can make next tax season easier for yourself if you start planning ahead.

If you expect your income to be about the same, you should have a rough idea of what you can expect for a tax bill. Start setting aside a little money every month to put toward that bill. Have a folder where you keep all your tax documents as you receive them, and keep any receipts that prove your tax deductions in there, too. When you receive all your tax documents for 2021, file early so you don't have to worry about penalties again.

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No one loves doing taxes, but you probably hate losing money just a little bit more, so get yours out of the way as soon as you can. As long as you have all your paperwork in order and you don't have unusually complicated taxes, it shouldn't take too long to check them off your to-do list.

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