As a tax attorney in San Francisco, I can tell you from my many years of experience that a substantial amount of people procrastinate when it comes to filing taxes. This is because it may seem like a daunting endeavor to organize tax information and fill out a return. One may also think that if taxes are not owed, filing is unnecessary. However, in my expert opinion as a tax lawyer, I have to advise you that failing to file a tax return is not a wise course of action.
The IRS Knows if You Fail to File
Although the IRS is a large organization and may be slow to contact you, it has all the information it needs to know whether or not you should have filed. For example, the IRS receives a Form W-2 from your employer each year, and businesses, investment companies and banks all send a Form 1099 to report other income you may have received during the year as well. This means that ultimately the IRS will know that you did not file — and you will subsequently face problems.
If a tax return is not submitted, a failure-to-file penalty is virtually guaranteed. The IRS states that the failure to file penalty is typically ten times higher than the failure to pay penalty, and therefore you should file your return, even if you think you owe money.
Consequences More Serious the Longer You Wait
The longer you wait to file your return, the more serious the consequences are in most cases. The IRS will initially send you a letter stating that you are being penalized for not filing. They may also create a tax return showing any employer reported wages. However, they will not take tax benefits or deductions into consideration. Therefore, unless you straighten things out, your bill may be far more than it would have been if you filed on time. The IRS may also file charges for tax evasion, take your refund, or file a lien on–or seize–your property.
Payment Plans are Usually Available
If you are avoiding filing because you think you cannot afford to pay your tax bill, you may be relieved to know that the IRS offers automatic approval for an installment plan if the amount you owe is less than $25,000. The IRS is more reasonable than people give them credit for! Rather than avoiding your tax trouble, our tax attorneys recommend facing the issue head on, and working out a payment plan to avoid, rather than face stiff penalties.
You May Forfeit a Refund
A common misconception is that there is no need to file if no taxes are owed. However, there are strict guidelines regarding who must file a return. If you are in the category of those who must file, it does not matter if you do not ultimately owe any taxes. In fact, you may forfeit your refund if you fail to file. Sometimes people mistakenly think they have no refund coming, and end up with interest and penalties when they may have actually qualified for refund.
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