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 to file on time. 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?
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.
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. When that’s the case, the state frequently follows the IRS' lead (which is a good thing, as many times the penalties that the 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:
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.
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. If your Social Security Number was linked to any type of document or paperwork that they received, whether that’s a W-2, 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.
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.