Ways to conquer fear of filing tax returns and reduce penalties
By Robert F. Hockensmith
Organizing documents, keeping them in order, backtracking on your investments and expenses and all the paperwork involved might sound overwhelming to some. So they try to escape the whole process of filing tax returns, by simply ignoring the preparation or submission. It’s been a month since the filing deadline and most people have already received their tax refunds, while others on extension have yet to file their returns for last year.
Believe it or not there are still some people that have not filed for past years and don’t plan on filing their tax returns merely because they are afraid of filing their tax returns. Many taxpayers do not know if they are due refunds or owe taxes, or they believe they owe taxes and therefore decide not to file or do anything about filing.
There are ways to conquer this fear of filing and reduce or abate penalties that may be charged against you. You must remember that the statute of limitations (the time the IRS can chase after you) is 3 years, but only IF you file a return. The statute does not START, until you file your tax returns.
The IRS now also gives you an opportunity to pay your taxes over time or even receive interest if a refund is due you. But if you do not file a tax return within 3 years of when it’s due, and you are entitled to a refund, the IRS will just keep it! This is just another reason to file your returns.
So, let’s look at some points to remember:
- Collect all expense and tax information, schedule an appointment with a tax professional and ASK THE PROFESSIONAL to help you sort through your information and prepare the returns.
- Filing a tax return that’s due a refund protects the refund to you (you must file within 3 years of due date), even if the IRS takes a long time to refund you. Plus, the IRS pays you interest on refunds due.
- Filing sooner reduces penalties (penalties for failure to file on time can be as high as 25% of the tax owed). PLUS, INTEREST!
- You can file a tax return even if you don’t have all the facts (you can always go back and amend the tax return for up to 3 years after the original filing, once you get all the relevant information).
- You can pay your taxes over time with the IRS if what you owe them is less than $50,000 using form 9465, Tax Installment Payment Agreement.
Here are the facts you need to know about unclaimed refunds:
· The unclaimed refunds apply to people who did not file a federal income tax return. The IRS estimates that half the potential refunds are more than $1450 per return.
· Some people, such as students and part-time workers, may not have filed because they had too little income to require filing a tax return. They may have a refund waiting if they had taxes withheld from their wages or made quarterly estimated payments. A refund could also apply if they qualify for certain tax credits, such as the Earned Income Tax Credit.
· If you didn’t file a return, the law generally provides a three-year window of the original due date to claim a refund from that year. For 2018 returns, the window closes on April 15, 2022.
· The law requires that you properly address, mail and postmark your tax return by that date to claim your refund. We always suggest when mailing returns, do so, certified mail, return receipt requested. Also remember you can e-file your past returns from 2012 tax years forward. AND be sure to use the correct address to send returns in, which is different from the address you send payments in. Your tax professional can help with the correct address or you can go to www.irs.gov and find the correct address to mail in returns or payments, based upon where you live.
· If you don’t file a claim for a refund within three years, the money becomes property of the U.S. Treasury. There is no penalty for filing a late return if you are due a refund.
· The IRS may delay your 2018 refund if you have not filed tax returns for 2016 and 2017. The U.S. Treasury will apply the refund to any federal or state tax owed. It also may use your refund to offset unpaid child support or past due federal debts such as delinquent student loans.
· If you’re missing Forms W-2, 1098, 1095, 1099 or 5498 for prior years, you should ask for copies from your employer, bank or other payer. If you can’t get copies, get a free transcript showing that information by going to IRS.gov. You can also file Form 4506-T to get a transcript.
· The three-year window also usually applies to a refund from an amended return. In general, you must file Form 1040X, Amended U.S. Individual Income Tax Return, within three years from the date you filed your original tax return. You can also file it within two years from the date you paid the tax, if that date is later than the three- year rule. This would mean the deadline for most people to amend their 2017 tax return and claim a refund will expire on April 15, 2021.
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ABOUT THE AUTHOR
Robert F. Hockensmith is a Certified Public Accountant based in Phoenix AZ.