Why You Should File Your Tax Return
We all generally know that we should do our taxes when the season rolls around, but some people do not know the particulars of what can happen if we don’t. It is important to file all of your tax returns, even those you originally miss. You can only receive your tax refund up to three years after the original filing deadline, but there is no time limit on filing past returns, and doing so can mitigate actions by the IRS. Many people are familiar with the crime of tax evasion, which is on the table anytime a tax return isn’t filed, and which can result in fines as much as $250,000 or even jail time. However, this is hardly the only potential consequence of not completing a return.
The IRS may file a Substitute for Return on your behalf for any number of unfiled returns. This is usually both good and bad. Good, because it is not as immediately harsh as other actions, bad because it can open you up to some of those same actions. SFR’s do not reflect any deductions or similar credits you may have qualified for if you had filed yourself, so if you owe anything at all, you will subsequently owe the IRS in the form of a tax liability.
Once you have a tax liability, the IRS can begin to take collection actions against you. Such actions can include garnishments, levies, and liens, and thereby resolve your liability directly via any combination of your wages, bank accounts, or physical assets respectively. Furthermore, there is no statute of limitations for tax liabilities. The only way to resolve your liability is to pay it, however long and in whatever form it takes.
It is a slippery slope when you stop filing your taxes. We see many clients who decided to not file one year or one quarter (businesses) then it snowballed and the penalties and interest added up and the liability added up before they knew it they owe tens or hundreds of thousands of dollars. It started with just missing one filing.
Just because you missed a filing deadline doesn’t mean you are done with a given year’s tax return. If that happens, it is just as, if not more important that you file it. If you are not proactive about taking care of outstanding tax returns and any associated penalties, the IRS will catch up with you, and letting them come to you will only mean steeper costs down the line. For this reason, it is advisable to speak with a qualified third party if you feel that it would be helpful.