What Happens If You Don't File Your Income Taxes?

Those who haven't filed their tax returns sometimes wonder if the IRS knows they haven't filed, if they follow them everywhere they go, and if they will be confronted at a most inconvenient time and asked "why haven't you filed?"

Well, the good news is that the IRS is not following you.  But, the bad news is that they (the IRS) will likely discover that you haven't filed.

Typically, there will be a 2 or 3 year time lag between the due date of a tax return and the time the IRS contacts you on the matter.  It's even common for 5, 6 or 7 years to pass before the IRS catches up on non-filers.  And, imagine this:  I've met several people who haven't filed for 20 years or more and have never been contacted by the IRS!  Don't count on it, but it does happen.  But, the IRS is probably getting better at finding those who have not filed, given the capacity of this high tech world we live in today.

If you are one of the unlucky ones who do get caught, and my guess is that most non-filers will get caught, the IRS will file a "substitute return" for you.  This return is based on information the IRS has from other sources, such as 1099's, W-2's, etc.

The problem is that the IRS will file the return as if you are a single taxpayer, even if you are married and eligible to file a joint return.  You will not get any credit for dependents either.  No deductions will be used in computing the amount of tax you owe (such as the amount of mortgage interest you paid on your home), even if the IRS also has information on these items.  Sorry, you get no benefits for deductions.  You just get taxed on income items they know about.

If you are self-employed, you get no expense deductions for the cost of running your business.  No mileage, no cost of labor and no other "normal" business expenses.  If you sold your home or other real estate, you will be taxed on the gross sales price of the home or real estate that was sold.  No deduction for the cost of the property.  It's the same for securities that are sold. 

Basically, the tax is computed on the "gross amount" paid to you without any reductions that you may be entitled to, and, of course, this overstates your real tax liability. 

To add insult to injury, penalties and interest will be charged to you.  These "add-ons" are huge.  They can double the tax in just a couple or three years.  Multiple penalties add up fast.  Once these are added on, the IRS treats them just like tax and sets out to collect these "add-ons" just as if they were the same as the original tax owed.

Do something about this if you find yourself in this predicament.  Even if the IRS has already filed a substitute return, it still makes sense for you to file your own return to make sure you take advantage of all the exemptions, credits and deductions you are allowed.  The IRS will generally adjust your account to reflect the correct figures.

Call me, Gerald Yarborough, at (800) 270-8616 and we can start a dialog that can create a plan to get these returns filed and corrected. 

Visit our website for more information about filing delinquent income tax returns.