Tax Law

Last updated November 20, 2024

Every year, Americans dread having to file their tax return. Filing an extension may be a way for you to delay filing for a few months, but you are still responsible for paying your taxes by the April deadline. You must report any income to the Internal Revenue Service (IRS) and pay taxes on the taxable income.

No one wants to deal with stressful tax issues. There are penalties for failing to file and for failing to pay your taxes, so it is helpful to talk to a local tax lawyer for legal advice to avoid additional penalties and a possible tax audit.

Who Must File Federal Income Tax in the U.S.?

Federal tax law is the same across the country, but most people also must deal with state or local taxes.

Most U.S. citizens and lawful permanent residents (LPRs) who work in the U.S. will have to file a tax return if they make over a certain amount of money. The base amount for filing taxes can change yearly based on filing status and age. IRS Publication 501 has the current filing requirement amount for most taxpayers.

Taxable income is not just income from your job or capital gains but can include other earnings, including gains from gambling activities. If you hit it big in Las Vegas, the casino may have to issue you a W-2G and can even withhold money for tax purposes if your winnings are high enough.

U.S. citizens living abroad may also be required to file taxes in the U.S., even if they earned all their income outside of the country. If you are wondering if you need to file taxes, talk to a professional, such as an account or tax attorney.

When Must You File Your Taxes?

There is an annual deadline each year for individuals filing taxes. Most individuals are calendar year filers and must file their federal income tax returns by April 15. There may be different tax year filing dates for business taxes and corporate tax deadlines.

The April 15 deadline can vary by a couple of days, depending on what day of the year April 15th falls. If April 15 is a Saturday, Sunday, or legal holiday, the tax deadline will move to the next business day. For example, if April 15 is a Saturday, the tax deadline would be Monday, April 17.

Military personnel injured or serving overseas may have additional time to file taxes.

You can file an extension if you need more time to meet the April 15 deadline. You can get an automatic 6-month extension by filing Form 4868, with the extension deadline of October 15. However, while an extension gives you more time to file, it does not give you more time to pay your taxes. You are still responsible for paying the full amount of taxes owed by April 15, even if you file an extension.

What Happens If You Don’t File Your Taxes?

There are different tax penalties if you don’t pay or file your taxes. Types of tax penalties include:

  • Failure to file penalty
  • Late-payment penalty
  • Underpayment tax penalties
  • Tax fraud penalties
  • Inaccurate return penalties

Taxpayers are required both to file their taxes and pay their taxes. If you do not file your taxes by the tax deadline, you may be assessed a failure-to-file penalty. Failure to file is generally assessed as 5% of the tax owed for each month your return is late, with a maximum of up to 25% penalty if your tax return is five or more months late.

You may be able to avoid failure to file penalties if you show good cause for not filing your taxes on time. The Internal Revenue Code governs tax law in the United States, but the code is long and complicated. You can review the tax code here, but it is probably best to talk to your tax law lawyer about clearing up any potential problems.

Tax Evasion

Tax evasion is a federal crime and penalties for a conviction for tax evasion can include jail time. For a tax evasion conviction, the government has to prove the taxpayer had a substantial tax deficiency and willfully made an attempt to evade payment.

Past-Due Taxes

Late payment or failure to pay your taxes is a separate penalty. Penalties for failing to pay your taxes are assessed at one-half of one percent (0.5%) for each month the payment is late, up to a maximum failure-to-pay penalty of 25% of the amount of the unpaid taxes.

Late payment is also subject to interest on unpaid taxes. In addition to any other penalties, taxpayers are responsible for paying interest on unpaid taxes, generally taxed at the federal short-term interest rate plus 3%, compounded daily.

If you do not pay your unpaid taxes and do not make other arrangements with the IRS, the IRS can take your property. An IRS tax lien or tax levy can seize bank accounts, personal assets, wages, and property. If you receive a notice of intent to seize your assets, you can request a hearing to appeal the assessment in U.S. tax court. Talk to a tax lien attorney for help dealing with a tax lien.

IRS Tax Audits

A notice of a tax audit from the IRS can be horrifying. However, tax audits are still rare for most taxpayers. According to the IRS, taxpayers with an income of between $25,000 and $500,000 only had a 0.1 to 0.2% audit rate. This means that out of 1,000 taxpayers making that amount, only one or two would have an audit.

Tax audits are generally based on computer algorithms that use “risk-based scoring mechanisms” to determine which taxpayers have a high potential for noncompliance. Other sources of tax audits may come from third-party information or whistleblowers reporting tax fraud.

If a tax audit finds problems with the filer’s tax liabilities, the taxpayer may be assessed additional audit penalties. Depending on the tax audit, the IRS could assess accuracy-related penalties or tax fraud penalties. Most tax audits will only go back three years, but there is no time limit for the IRS to review taxes involving tax fraud.

What If I Can’t Pay My Taxes?

Some taxpayers can get so behind in their taxes that it becomes difficult to see a path to fully paying off that debt. There are some options for taxpayers who need help paying off their taxes. An individual payment plan can help you reduce additional penalties by making regular payments according to the long-term or short-term payment plan. However, if you fail to make the required installment payments, the IRS could terminate the plan and assess the full tax penalties and interest.

Another option is an offer in compromise. An offer in compromise will allow the taxpayer to settle their debt for less than the full amount owed. The IRS will consider each taxpayer’s individual situation in evaluating an offer in compromise, including their ability to pay, income, expenses, and equity.

State and Local Taxes

In addition to federal government taxes, taxpayers like yourself also have local and state governments to contend with. You are responsible for filing and paying state taxes, sales taxes, property taxes, excise taxes, and other taxes that apply where they live.

Tax policy is a complex area of law. Having experienced tax professionals on your side can make a significant difference. Talk to a tax lawyer or CPA for the most up-to-date information on tax regulations and filing requirements in your area.

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