You may not owe taxes at the level of Wesley Snipes or Pamela Anderson, but failure to file a return or filing late can be costly. Here are 5 things you need to know if you haven’t filed lately.
1) If taxes are owed, a delay in filing may result in penalty and interest charges that could increase the tax bill by 25 percent or more. “Many delinquent taxpayers haven’t filed because they don’t have the money to pay, and then they’re socked with both the failure-to-file and failure-to-pay penalties,” said Alan Pinck, EA of A. Pinck and Associates of San Jose, CA. “Often they don’t realize that they can reduce their penalties by filing even if they can’t pay.”
2) Filing an extension doesn’t mean you’ve got additional time to come up with the cash. Interest is charged on taxes not paid by the due date, whether or not an extension is filed. Interest is also charged on penalties.
3) Don’t assume that because you’re getting a refund, you don’t need to file. True, there is no penalty for failure to file a tax return if a refund is due, but by waiting too long to file you’ll lose the refund. The return must be filed within 3 years of the due date. Plus, if you’re self-employed you won’t receive Social Security credits towards your retirement unless you file tax returns reporting self-employment income within three years of the due date.
4) Ignoring those letters from the IRS is not a winning strategy. Ignoring the IRS and repeatedly failing to file can result in more penalties and possible criminal prosecution.
5) If you come forward, it’s extremely unlikely you’ll land in jail. Assuming your income is earned legally (think of Al Capone), you filed a return and are trying to pay off the amount owed, the IRS is willing to work with you.
The IRS’ Offer in Compromise program allows a delinquent taxpayer’s debt to be settled for less than the full amount owed. But taxpayers who have not filed or owe money should find a licensed tax professional to guide them through the maze of IRS rules and regulations. IRS itself licenses enrolled agents. An “EA” can help get you out of tax trouble and keep you there. To earn the EA license, candidates must pass a background check and a stringent three-part exam on tax. To maintain the license, they must complete annual continuing education that is reported to the IRS. Members of the National Association of Enrolled Agents (NAEA) are obligated to complete additional continuing education and adhere to a code of ethics and rules of professional conduct.
The Blau Company, Ltd. is proud to employ three Enrolled Agents (four during tax season). Aaron Blau, EA, CPA is an instructor for the Special Enrollment Exam Course Review for the Central Arizona Chapter of Enrolled Agents since 2007.