It happens to the best of us. People don’t file their tax returns, sometimes for many years. Maybe you don’t have the money to pay the tax, or you are too busy, or something happens in your life. Maybe you’re scared. It happens. I see it a lot.
Before we go any further, the first thing you need to determine is whether you have a statutory obligation to file a return. I’ve had plenty of clients walk into my office and I’m happy to tell them that they were not legally obligated to file a tax return. The obligation to file a return attaches to the receipt of taxable income, and that obligation only exists when taxable income is received in excess of the statutory filing requirement for the year in question.
Now, if you are obligated to file a tax return, most taxpayers should file delinquent tax returns as soon as possible. And here’s four reasons why…
REASON ONE: By not filing your tax returns, you’re giving the IRS unlimited time to collect the tax. The IRS only has 10 years to collect the tax due, but that period won’t start until you file a return. Furthermore, many of my clients qualify for a federal program to wipe out income tax completely, but you won’t be able to qualify for that program until you file your tax return.
REASON TWO: By not filing your tax return, you’re giving the IRS a free shot to overestimate what you owe the government. You see, the government may file a tax return for you and call it a “substitute for return” and in almost all cases the IRS will overestimate your income and inflate the tax due, because a substitute tax return reports gross income, but not any deductions. To claim available deductions, you must prepare and file you own actual tax return.
REASON THREE: The IRS assesses separate civil penalties for failure to file tax returns and for failure to pay tax. The penalty for failing to pay tax reported or required to be reported on a tax return is one-half of one percent of the unpaid tax for each month of the failure, up to a maximum of 25 percent. The penalty for failure to file a tax return due is a whopping five percent of the tax required to be reported on the return for each month of the failure, up to a maximum of 25 percent. And to make matters even worse, the IRS charges interest on the unpaid tax and the penalties!
So even if you don’t have the money to pay the tax reported on the return, go ahead and file the return anyway. By the way, the IRS can abate penalties upon a showing of reasonable cause. If you need help with that, let me know.
REASON FOUR: In extreme cases, the IRS prosecutes those who don’t file returns. Remember Wesley Snipes, the actor? He was indicted for conspiring to defraud the United States because, in part, he did not file a return. That’s why if you have not filed a tax return, and you were required to do so, it’s far better to come forward and file the return than have the IRS find out about it and slam you with penalties and, in rare cases, a criminal investigation.
If you have not filed your tax return on time, I can help you step forward and give you peace of mind. Call me for free: 800 659 0525.
2505 North 124th Street
8875 Hidden River Parkway