Paying taxes owed to the IRS, states, and local governments is a responsibility of all U.S. citizens, yet the IRS estimates that nearly ten million Americans fail to file tax returns every year, including many who fail to file their tax returns on a regular basis – sometimes for decades.
Why you should file your taxes
Filing your tax return is a legal requirement and a civic duty. Constitutional challenges or the objections to the use of taxpayer funds have generally been unsuccessful.
In addition to the legal requirement, there are financial incentives to making sure your tax filings are current:
- Avoiding additional penalties and interest – Penalties and interest are due on all tax returns filed or paid late. The interest will never stop accruing, and the penalties can be upwards of half of the tax owed. The IRS may choose to audit any taxpayer, regardless of whether they regularly file tax returns or not, so failing to file does not mean you won’t get caught.
- Obtaining refunds when taxes are withheld from your wages – A taxpayer only has three years from the date a tax return is due to collect a refund on taxes withheld from your wages.
- Social Security benefits – Those who earn a wage have Social Security tax withheld from their wages automatically, but anyone who owns a business is responsible for paying the Social Security tax on their net income. If no income is reported, it has an impact on how much a taxpayer can receive in Social Security benefits when they reach the appropriate age.
- Inability to obtain financing – Many loans require proof of income, and often one to three years of tax returns. It can be very difficult for a financial institution to get their money back from a person who is subject to IRS liens and levies, so filing returns may be a condition to obtaining a loan, including obtaining financial aid for school for yourself or your dependents.
- The IRS can file your taxes for you – In addition to auditing a taxpayer, the IRS can prepare what’s known as a substitute for a tax return. Typically, a substitute return will not take into consideration any possible deductions, credits, dependents, or other favorable treatments for tax purposes, often leading to a much higher assessment of tax, and therefore penalties and interest, than if the taxpayer had filed the return themselves.
What should you do?
We get it, paying taxes isn’t the most ideal recreational activity. Sometimes, life gets in the way of doing things we ought to be doing, or the bills pile up, or the fiscally responsible person in a relationship dies. Regardless of the reason for overdue returns, it’s important that you file them as soon as possible. Filing locks in the deadline for the IRS to perform an audit, lets the taxpayer set the initial record for how much tax is owed or how much of a refund is due, and prevents further penalties from stacking up. In addition, if the burden of catching up on past due returns is too great to handle, it’s possible to negotiate with the IRS, or the state, to alleviate some of the penalties and interest, and break the balance up into a more manageable payment plan.
The tax attorneys at Paule, Camazine & Blumenthal can help you work through your delinquent tax return issues.
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