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There are various reasons why people do not file their tax returns. Maybe they are not required to file a federal tax return, or are not aware that they should file one.
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Interestingly enough, not taking the time to complete a tax return is one of the most common reasons for late filing, as well as not having the funds to pay what is owed.
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So, if you haven’t filed your tax return yet, there several possibilities to consider.
First of all, check whether you are required to file a return or not. If you are a U.S. citizen or resident, whether you must file a tax return depends on three factors: your gross income, your filing status, and your age. For instance, if you were single, under 65, and had a gross income of at least $10,350 at the end of 2016, then you are required to file a federal tax return for the year.
Even if you are not required to file a tax return, you may still want to do it to get some credit you may be entitled to, like the health coverage tax credit for instance.
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- If you are self-employed and do not file your federal income tax return, any self-employment income you earned will not be reported to the Social Security Administration and you will not receive credits toward Social Security retirement or disability benefits.
Also, loan approvals may be delayed if you don't file your return. Copies of filed tax returns must be submitted to financial institutions, mortgage lenders/ brokers, etc., whenever you want to buy or refinance a home, get a loan for a business, or apply for federal aid for higher education.
If you are required to file a tax return, do it as soon as possible.
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There is no penalty for failure to file if you are due a refund. But, if you wait to file a return or otherwise claim a refund, you risk losing the refund altogether. An original return claiming a refund must be filed within three years of its due date for a refund to be allowed in most instances.
After the expiration of the three-year window, the refund statute prevents the issuance of a refund check and the application of any credits, including overpayments of estimated or withholding taxes, to other tax years that are underpaid. |
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| However, the statute of limitations for the IRS to assess and collect any outstanding balances does not start until a return has been filed. In other words, there is no statute of limitations for assessing and collecting the tax if no return has been filed. |
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| If you owe tax and you failed to file and pay on time, you will most likely owe interest and penalties. To keep interest and penalties to a minimum, you should file your tax return and pay the tax as soon as possible. Here are some facts that you should know: |
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- Two penalties may apply: one penalty is for filing late and one is for paying late. They can add up fast and interest accrues on top of the penalties.
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- Penalty for late filing. If you file your tax return more than 60 days after the due date or extended due date, the minimum penalty is $205 or, if you owe less than $205, 100 percent of the unpaid tax. Otherwise, the penalty can be as much as five percent of your unpaid taxes each month up to a maximum of 25 percent.
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- Penalty for late payment. The penalty is generally 0.5 percent of your unpaid taxes per month. It can build up to as much as 25 percent of your unpaid taxes.
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- Combined penalty per month. If both the late filing and late payment penalties apply, the maximum amount charged for the two penalties is 5 percent per month.
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The late filing penalty can be 10 times higher than the late payment penalty. If you can't pay your tax bill and didn't file an extension, at least file your return as soon as possible! You can always amend it later.
While the government has only six years from the date the non-filed return was due to criminally charge you with failing to file a tax return, there is no time limit for collecting taxes and assessing financial penalties for not filing. It is not until you actually do file a return that the audit time limit (three years) and collection time limit (ten years) starts to run.
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| When you file a tax return on time, the IRS only has three years to examine it further and assess additional taxes, if necessary. If you never file a tax return, this time limitation never begins, effectively giving the IRS an unlimited amount of time to assess tax. This means that if the IRS realizes a decade later that you failed to file multiple returns, it retains authority to assess taxes. The burden will be on you to prove that the IRS assessment is inaccurate. As time passes, this may be harder to prove as most taxpayers don't retain records for income they earned over 10 years ago. |
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As a rule of thumb, the IRS will look for only the last six years, and may be willing to work out an agreement for less for someone that is voluntarily coming forward.
In order to complete long past due tax returns you will have to reconstruct your income and expenses for those years. The IRS can help you with some of the information if you ask. When talking to the IRS representative ask them to send you the "wage and income transcripts" for the years that you have not filed. If you go back further than seven years, they will not be able to get you information back that far as it has been removed from the active system. They will, however, let you know how to obtain that information. |
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Also worth mentioning is that, by law, the IRS may file a substitute return for you if you do not voluntarily file. A series of letters is first sent explaining the possible action IRS may take as part of the Substitute for Return Program.
If you do not file a return or otherwise indicate disagreement such as by requesting to exercise your appeal rights, the IRS will file a basic return for you. An IRS-prepared return will not include any of your additional exemptions or expenses. The IRS will compute the tax liability and send you a bill for the tax that will also include interest and penalties.
If a substitute return has already been filed for you by the IRS, you should still file your own return to claim any additional items. The IRS will generally adjust your account to reflect the corrected figures.
Past years tax returns cannot be filed electronically, you have to mail them, each return in a separate envelope. |
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If you have past years tax returns to file, our advice, as always, is to hire a tax professional. A professional decreases the chances of mistakes and, consequently, that the return will be audited.
Also, a good tax professional can offer advice on what you can do in the future to cut your taxes or reduce your audit risk.
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Whether you opt for professional help or not, remember that filing your tax returns can be the quickest way out of tax trouble.
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