File your Tax Return!
Today I want to talk a little about the importance of filing a tax return vs. paying your taxes. In my job as a tax attorney working with folks that have various disputes with the IRS, I run into many misconceptions related to whether you should file your tax return if you can’t afford to pay.
There are some great pieces of information in here, so I hope you’ll stick around to the end.
The U.S. Tax System is based on the “honor system”
Our tax system is set up in many ways like an honor system. We actually do our own taxes, and then we tell the government what we owe.
Of course, we do this under a rigid system of laws and regulations, but in the end – the tax return that we submit tells the government and the IRS what we owe this year. We sign the tax return, and we do this “under penalty of perjury.”
We all know, or should know, that the government has their own sources of information as to what our incomes are from certain sources, and they require informational returns from businesses and financial institutions. They use these sources of information to check your return, looking for inconsistencies, or other reasons to ask for more information. But, most of the time, this information is not used to tell us what we owe. It is used mainly as a “sanity check.”
That is why, and this might surprise some of you, that it is actually a crime not to file your tax return. The government requires us to file a tax return if we meet certain minimal levels of income, etc.
And – you are supposed to know whether you are required to file, and then do so.
This does not mean that you have to pay if you file your tax return. This is very important!!
You should file your tax return even when you owe money to the IRS and you cannot afford to pay.
In almost every case, the answer is YES! If you owe money to the government, and you cannot afford to pay, you should (must) still file your tax return. If it is late, you’ll possibly pay a penalty. If you owe money, you most likely will owe a penalty. If you owe, you will incur interest charges also.
But, it is not (generally) a crime not to pay your taxes if you don’t have the money to do so. That is why it is important that you file your tax return, and do so as accurately as you can. If you can’t afford to pay, then there are options available for you. I am happy to discuss those with you separately if you fall under this category.
I want to be clear here. It can be a crime to not pay the government the taxes that you owe if you can afford to pay, but you instead evade paying taxes. This is a whole other matter that I am not going to get into here.
You should file your tax return even when you know the IRS owes you a refund.
Even if you have been paying into Federal Taxes through your employer’s deduction from your paycheck, and you figure the government owes you money in the form of a refund, you should still file. I see many people not doing this.
Again, this is a small little crime. It is almost never pursued, especially when you are actually owed a refund, but there are plenty of negative things that still can happen from not filing your tax return along with the eventual loss of the right to the refund.
It is also important to file your tax return because doing so opens up many legal avenues for you if you can’t afford to pay. The “clock” starts ticking on the statute of limitations and several other timelines that are generally in your favor. If you haven’t filed your return, then the clock hasn’t started to tick. If the government has ten years to collect a tax from you, then this clock doesn’t start to tick until you’ve filed your taxes.
Also, if you need to work out a payment plan or other means of taking care of the taxes you owe – you generally will be required to file your tax return before the IRS will discuss favorable resolution. They will always accept a voluntary payment from you, but they may not stop active collection efforts until you’ve complied.
So, the bottom line is – File your tax return, no matter what! With the caveat that you may not be required to do so if your income is too low, etc. Many Social Security recipients with no other sources of income may not need to file. Check with your accountant or other tax preparer on questions like these. But, when in doubt – File your Tax Return.
Stay tuned for more exciting episodes of Tax – and other necessary things. In the next episode, we’ll discuss what happens when you don’t file your tax return.
Click here to meet with Tax Attorney Mark D. Nusz
I hope this has been helpful to you. Once again, I am Mark Nusz at Westward Law. So long…