The Case of the Late Tax Return
Still Haven't Filed Your Tax Return?
Probably the worst thing about a late tax return is the effect that it has on your state of mind. A late tax return is always at the back of your thoughts, waking you up at night and giving you little electric shocks of panic now and then.
If you filed an extension for your tax return, excellent! File before the extension deadline, and you will avoid late filing penalties on any balances owing. You will still pay a late payment penalty (.5% per month) and interest ( 3% yearly as of October 1 2015).
If you did not file an extension and your tax return is a personal return, such as a 1040, 1040EZ, 1040A, you may still avoid penalties if your return shows a zero balance or a refund. Other returns, such as the 1065, 1120, 1120S, are beginning to have late filing penalties assessed even when there is no balance due.
Perhaps the fear of owing the IRS is your reason for not filing your late tax return. Keep in mind that you can take advantage of payment plans that the IRS has in place. Requesting an payment plan for your taxes in the form of an installment agreement can be as easy as attaching a form with your tax return. If you have absolutely no funds and no or low income, there are also other options that the IRS now has available. You may qualify for an Offer in Compromise, where the tax debt is settled for less than the total. You may qualify for an administrative hold on your account, where the IRS puts a notice on your tax account that no collection action is to be taken for a certain period of time.
Another issue that I find with clients who haven't filed their tax return in many years, is a feeling of being overwhelmed and not sure where to begin. They may also feel embarrassed about letting the problem go for so long. The answer is to simply begin. Gather up your documents, sort them out, and make a list of what you are missing. Make an appointment with a tax professional to help you. A competent tax accountant can give you many suggestions and techniques for retrieving missing tax data. Clients tell me they feel such a sense of relief and empowerment to finally be taking care of filing their late tax returns.
If you are owed a tax refund, keep in mind that you only have three years to claim it. If you wait too long to file, the refund is lost.
The IRS has a thorough and extensive system for checking for unreported income. If your income was reported on a W-2, 1099, K-1, or other similar forms, then the IRS already has a record of the income you received. The IRS computer will do a calculation to see if you would owe taxes on that income. The calculation assumes that you are single, have no dependents, and no itemized deductions. It does allow for any tax withholding or estimated payments that you have made. if the calculations show that you should owe taxes, then you will receive a notice of a proposed assessment of taxes. This notice is usually received about one to two years after the year that you earned the income.
In my experience, it is much easier to avoid or abate penalties if you file your late tax return before the IRS sends you a notice of unreported income.
So start right now, find those old tax documents, and file that tax return. You'll rest much easier for it.
Legal and IRS required notice:
This article is not intended to be specific tax advice. It is intended as a general guideline only. Any specific advice should be sought from your tax professional.
CIRCULAR 230 DISCLOSURE: Pursuant to Treasury Department guidelines, any federal tax information contained in this article, or any attachment, does not constitute a formal tax opinion. Accordingly, any federal tax advice contained in this communication, or any attachment, is not intended or written to be used, and cannot be used, by you or any other recipient for the purpose of avoiding penalties
Certified Public Accountant
Useful Resources
Use this government link to determine your future social security benefits.
Information on your tax refund from the IRS.
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Information on your tax refund from Indiana
Information on your tax refund from Michigan
Patricia Tokar Canton, CPA Home Page
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