What happens if you don't file your taxes? The penalties are "huge."
Each year, about 5% of taxpayers fail to file their taxes, with the top two reasons being that they are overwhelmed by the tax prep's complexity or simply objecting to paying income taxes, according to David Ragland, a certified financial planner and CEO of IRC Wealth.
But choosing not to do your taxes is a bad idea because the IRS receives copies of tax forms such as W2s, 1099s and other forms that the agency will use to determine whether a taxpayer failed to file their annual return.
"It does catch up to you, and the penalties and interest are huge," Ragland told CBS News. "If you don't file your return, any unpaid taxes you're going to have to pay interest on."
The penalty rate for failing to file is 5% of unpaid taxes for each month that a filing is late, with the penalty capped at 25% of unpaid taxes. For instance, a taxpayer who owes $10,000 would owe $500 each month, up to a max of $2,500.
There's also the chance that the IRS will file your taxes on your behalf, Ragland said. The agency would also be conservative, relying on your W2 and other tax forms, but likely failing to take deductions that you yourself might have used on your tax return, he noted.
"Just because you don't file the return doesn't mean you can escape the IRS long term," Ragland said.
How to ask for a tax extension
If you're overwhelmed or simply not ready to file your taxes, it's easy to ask the IRS for an extension.
To do that, fill out Form 4868, a one-page document that asks for basic information such as your name, address and Social Security number. It also asks you to estimate how much you owe in taxes, because an extension to file doesn't mean an extension on paying the IRS what you owe.
You can also use the IRS's Free File program, typically only available to people who earn less than $73,000 annually, to file for an extension. Anyone, no matter their income, can use the program to file for an extension electronically.
If you are worried about paying the IRS, Ragland noted that the agency will set up a payment plan for you to pay off your IOU to the agency.
"They are going to go through you income and assets to determine what a reasonable payment is," he said. "They aren't going to take every single dollar."
