According to the IRS, there are approximately 7 million non-filers in the United States. A non-filer is anyone that is late on at least one required tax return filing.
In general, people with income, need to file a tax return. Unfortunately, there are many people that do not file for one reason or another, which we will discuss later. This is one problem that will not go away if you choose to ignore it and will get worse with time.
In recent years, the IRS has made it clear that they are going to start pursuing non-filers. Their effort is going to be made a little easier with the recent stimulus checks. When people heard that the government was going to start giving out free money, it got their attention. For those that had not filed in many years, the IRS created a special website that they could go to and provide their information to make sure nobody was left out. However, this same site is going to be the perfect spot for the IRS to start their pursuit of non-filers. So, do not be surprised if you now start getting IRS notices “politely” asking you to file your past tax returns.
Not convinced yet…here are a few of the downsides to not filing:
– Interest and penalties continue to accrue, often surpassing the amount of the original tax liability. There are ways to reduce these amounts but only if you file all your past tax returns.
– You might lose your refund. If you do not file a return and are due a refund, the ability to receive that money usually goes away after 3 years. So, you are basically giving the government your money.
– The IRS will file your return for you…and send you the bill for the outstanding taxes. This usually happens after about 5 years. Unfortunately, the IRS does not necessarily know your entire tax situation and often their returns creates a lot more tax liability than if you filed it yourself.
– You could be arrested! Failing to file your taxes is a crime and depending on the circumstances, it could be a misdemeanor or a felony.
– Maybe you heard that the IRS only has 10 years, in most circumstances, to collect those taxes from you. That is true…but that time starts when the return is filed, not necessarily in the year it originally related to.
– Like to travel – the IRS now has the ability to revoke or limit your passport if they determine that you are “seriously delinquent” in your taxes.
Often people stop filing their taxes for several reasons.
– Some just get busy and then enough time passes that they just do not know where to start. This applies to many areas of life but the easiest thing to do is do something. The first step is to contact a qualified tax professional that can discuss all your options with you. Not all tax people are created equal, so make sure the person you choose has the experience and knowledge to help you with your specific problem.
– Others have been given horrible tax advice from someone they work with or socialize with. It never ceases to amaze me some of the ‘tax advice’ that people have gotten from ‘a guy at work’. Unless that person has a background in taxes, be careful who you get your tax advice from and do not be afraid to get a second opinion.
– Probably the biggest reason people do not file their taxes is because they cannot afford to pay the taxes that are due. I understand that mindset but as mentioned before, the interest and penalties for not filing will only make that worse. Also, there are payment plans and other options for paying those taxes. Again, you should speak to a tax professional to make sure you understand all your options.
So, whether you are already getting notices from the IRS or state about your taxes or dread every trip to the mailbox because of what might be in the box, now is the time to act. It is always better to fix the problem before the IRS comes knocking. Once you are all caught up, there are many options to deal with the result.
Avoidance is not an option and will only make things worse!