There
are a lot of perfectly reasonable reasons for not having filed your income
taxes. Many people who fail to file are new to the job market, and never having
filed before may simply have been unaware of the requirement to do so. Some
people know but are too overwhelmed with other life events, including
illnesses, death, or job loss. Whatever your reason and whether you’ve only
missed one year of filing or several, there comes a point when you either
remember on your own or are prompted for a request for a copy. Now, what do you
do? And how much trouble are you in?
Here’s the Good News
First of all, if you’re the one who realized
that you haven’t filed rather than getting a notice from the IRS or your state
tax authority, then you’re probably not in too much trouble. Even if you’ve
gotten a notice, there’s a specific legal process that gets followed when a
taxpayer hasn’t filed a return, and it is a perfectly reasonable procedure that
can be addressed and managed. There is no reason to panic, as nobody is going
to break down your door and haul you away. Filing taxes is a matter of
paperwork and payment. If you haven’t been in compliance, you simply need to
amend the situation and pay some penalties, and possibly some interest.
As A Matter of Fact …
You may not even have been required to file a
return.
There are plenty of taxpayers whose
circumstances are such that they aren’t required to file a tax return, and when
that’s the case, the state frequently follows their lead (which is a good
thing, as many times the penalties that a state charges for failure to file tax
returns are higher than those imposed by the federal government.)
The best and easiest way to find out whether you
are one of those who didn’t need to file is to visit the IRS website, where
there is a handy tool called “DO
I NEED TO FILE A TAX RETURN?” Plug in your
relevant information about the tax year in question, your income, household
composition and filing status for a quick answer. You may be in for a pleasant
surprise unless you fall into one (or more) of the following categories:
- You earned at least $400 in profit from being self-employed. This can include any job for which you received a 1099, and anything from doing freelance work as a writer to providing landscaping services for your neighbors. Driving for Lyft or Uber counts too.
- You sold your house, even if it was a break even or loss and you had no income that year
- You received unemployment benefits
- You are a worker who earns tips and they weren’t reported to your employer. Even if you reported them you may have to file a tax return if they didn’t submit payroll taxes for them.
In
each of these situations, you are required to file a tax return, regardless of
how much or how little you earned and whether you paid taxes on those earnings
or not.
Fortunately, filing a tax return is always
possible, though you may have to pay a penalty. On the flip side, you may
actually have a refund coming which obviously will benefit you to
file.
Did the Government Do It For You?
Though the IRS doesn’t always catch every time
that a taxpayer fails to file a tax return, when they do they will send out a
notice. And if your Social Security Number was linked to any type of document
or paperwork that they received, whether that’s a W-2, a 1099 or any other type
of form, they also probably filed a substitute tax
return to make up for your oversight.
These substitute returns represent a bare minimum of information. They don’t
enter any of the information that you might have provided in order to minimize
your tax liability – they use the standard deduction and personal exemption,
then record the income information that they have. It’s also what they’ll use
to figure out your penalties, interest, and fines owed.
There are a lot of reasons why you should take
action to get a real tax return in for yourself instead of the substitute
return that the government provided, but one of the best reasons is that when
you’re asked for a previous year’s tax return so you can take out a loan, the
substitute won’t satisfy the lender’s requirements.
Better Late Than Never, But It Has to be
Right
When you’re filing a past-due tax return, you
want to make sure that every “t” is crossed and every “I” is dotted. This is no
time for making mistakes or leaving out important information. Even if your
returns are generally simple, you’d be wise to work with an experienced tax
professional in getting your papers turned in
to the federal and state authorities. They will look out for your best
interest, helping you to avoid any potential pitfalls and acting on your behalf
to address complex questions and offering authoritative explanations of your
inaction if necessary. In some circumstances a tax professional can even
get your penalties abated or minimized.
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