Should You File Past Due Tax Returns?

Every year, many people who should have filed a tax return (or several years of returns) don’t file. Some think that if they cannot afford to pay the taxes due, they are better off not filing. For one reason or another, they missed the deadline and now wonder whether they’re better off filing the past due returns or trying to forget them.

The law requires you to file your taxes every year that you have a filing requirement. If you don’t file in a year you’re required to, the government may impose civil or criminal penalties against you for failing to file your return.

In addition, if you owe taxes with your late return, the IRS will assess a penalty of 5% of the tax due for the first five months – up to 25% of your total tax bill. The IRS will also charge you interest on the unpaid tax. If you were owed a refund, you could lose the refund if you don’t file within three years of the due date.

If you have unfiled tax returns, you should be prepared for the possibility of your returns being audited when you do file them. The IRS does not publish its approach for selecting returns to audit, but relatively simple returns with W-2 wages are unlikely to trigger one. However, if you haven’t filed for a few years and then subsequently file a return with significant self-employment income, your return would likely raise some red flags. The chances of being audited go up significantly if you file a return that doesn’t include income that had already been reported to the IRS, such as W-2 or 1099 income.

If you owe tax with your return but can’t pay, you should always at least file your returns to avoid failure-to-file penalties. If you have filed all of your outstanding returns and can demonstrate your inability to pay, the IRS will work with you on a payment arrangement, and you may be eligible for penalty abatement in some cases.

Have more questions? Schreiber Accounting and Advisory can help with comprehensive tax return preparation and tax planning services. Contact the firm for more information.

Material discussed is for informational purposes only. It is not to be interpreted as investment, tax, or legal advice. Individual situations vary, and this information should only be relied upon when coordinated with individual professional advice.