As most people know, failure to file an income tax return can cause trouble—or you might not get a refund that is owed to you.
For most working adults, filing an income tax return is a part of life. When you enter the working world, or start earning real money, tax is withheld through your employer. As an entrepreneur or business owner, you are responsible for reporting and paying over applicable taxes.
In the past year, economic stimulus checks were paid out to a lot of Americans. Many people who had not filed their tax returns in several years checked in with the IRS, filing returns, and updating their contact information. Failure to file is not illegal for those who owe no taxes. There are some compelling reasons to file your annual tax return anyway, though. Some of those include:
- Obtaining a loan: When you finance a purchase, the lender may wish to see income tax returns from prior years. Mortgage and other larger loans may be out of reach for nonfilers.
- Collecting social security benefits: Your ability to collect social security during retirement depends on sufficient payment into the program during your working years. Disability and social security benefits are figured around earning records reported on your income tax return.
- Refunds: Employees have taxes automatically withheld by their employer. If you do not file your return within three years, you may lose that refund.
For those who do owe taxes, failing to file, or filing a false tax return can lead to an IRS civil tax audit or even tax litigation. For business owners, looking the other way at tax time, or when payroll taxes are due, can lead to trouble:
- If you owe taxes, they are due when the return was due, even if you received an extension. Interest and penalties can accrue if you do not pay what you owe—on time. Late filing penalties can add up quickly.
- If you have not filed a return in several years, especially if you run a profitable business, it is possible that the return will garner the interest of the IRS. An audit may follow—not because the return is a year or two late—but because red flags appear when a sizeable income stream is reported on which one more year of back taxes have not been paid.
- Because of increased agency scrutiny, you may feel less inclined to file, or to file a fraudulent tax return that omits a certain amount of earnings to avoid IRS interest. Not a good idea.
Regardless of your income level, it is better to rectify a situation with the IRS sooner than later. The IRS is open to working out tax liabilities with taxpayers to return you to good standing and avoid continued accrual of expensive penalties.
When in doubt—or when you already know you have a problem with the IRS—speak with a reputable tax attorney for advice.
Experienced legal guidance with IRS audits and IRS criminal tax investigations
The tax lawyers at Robert J. Fedor, Esq., LLC offer strong legal service if you are dealing with a civil tax audit or a criminal tax charge. With offices in Chicago and Cleveland, call our tax group at 800-579-0997 or contact us online to set up a free consultation.
