April 15th is fast approaching and failure to file can be a serious issue. If you are liable to file, you will need to do this sooner or later so no sense ever putting it off just because you are unable to pay your tax. The main reasons why some fail to file is they think they are not liable or they are unable to pay the tax so they think the IRS will not notice them if they don’t send it in.
(I am trying to keep my tax posts shorter so they will be easier to understand, more to come!)
There has been online free filing available for the average middle or lower income brackets for many years now if you are a W-2 employee and under a specified dollar amount each year. For the self employed or small business owner, you will need to find a trustworthy tax preparer if you are not able to file the return yourself. There are some areas that will help you file if you are a senior or low income as well.
Those that don’t have the money to pay their tax and think they can go undetected need to know that the IRS receives the same 1099 and W-2 information that you receive from your employers each year. Thanks to computers the IRS has a real good idea of who is liable to file so not having the taxes to pay because of insufficient withholding or non-payment of your self-employment or estimated tax during the year is no excuse. Others just don’t want to pay and have some delusion that they can get away with it. Some may think they are not liable, but actually are or the IRS thinks they are.
For the wage earner, W-2 employee, you can quickly figure out if you are liable by comparing your gross income less your deductions, exemptions and any other credits you are entitled to. If the income is more than the total of your deductions, exemptions and credits, you may not be liable. In other words you either would not be owing tax or you may actually be entitled to a refund. The IRS will not file for you in the case of a missing return due a refund. You would just risk never getting the refund for that year if you waited longer than the refund statute of limitations of three years.
Example, you failed to file for three or more years even though you were owed a refund each year. If you finally decide to file one of the returns for the refund, the IRS will insist you become compliant, or up to date with all of them from the last 6 years before they will give you the refund for that one year just in case you end up owing for any of the other delinquent years. Keep in mind that the IRS has no idea what your credits or deductions are, even exemptions because they can’t be sure how many people you are claiming and why for each year as well as what you are writing off. Important! Sometimes the IRS thinks you are liable to file and owe money when in fact if you filed with all your correct information, you would be due a refund. Once you file all the returns, you will only be sent the last three years refunds even if you qualified for the last five missing years they finally received due to that statute of limitations on refunds. Never let them keep your money because of laziness or lack of knowledge.
Important reason to know why you need to file timely even if you cannot pay your tax is that the IRS will penalize you for both non-filing and non-paying separately. Failure to file as well as your failure to pay the tax timely. If you file timely but don’t pay, you will be spared the failure to file penalty, but you will be paying the failure to pay penalty unless you can arrange something with them by perhaps making installment payments if you have no other way of securing the funds. This is another reason not to fudge your W-4 at work. You want to be sure they are withholding the correct amount so you do not end up with a tax deficiency by year end.
The IRS can and does file a substitute return, ASFR, for taxpayers that do not file and are liable to file and have taxes due. Sometimes they don’t get around to doing this for years so don’t think you’re forgotten if they don’t send you anything for quite a while. Once they do file for you, depending on how late it is, you will receive additional fines and penalties accordingly.
For help with Affordable Care Act questions when filing.