If you are required to file a tax return and do not, then you are just being stupid, dumb and silly. The IRS is watching and they have the capacity to track any income reported to your social security number, and they will catch up with you.
As an enrolled agent, the US Treasury has authorized me to represent people before the IRS, and I have seen first-hand the type of mistakes people make that cost them more money in terms of interest and penalty. One of the most common mistakes is not filing.
Failure to File
This penalty is self-explanatory. If you do not file a timely return, the IRS may slap you with a penalty that is almost unconscionable – each month they will charge you five percent of the tax due, up to a maximum of 25 percent. That means that if you owed the IRS $2,000 and did not file a return, you now owe them an additional $500.
A “timely ” return is one that is filed no later than April 15, or October 15, if you had requested an automatic six-month extension by simply mailing in form 4868. Why should I file an extension if I do not owe money? Why don’t I just file my return in August and get my refund, after all, the penalty is based on the amount I owe, and if I owe nothing, then the penalty is zilch? Simple answer – what if you are wrong in your assumption and actually owe money? A sad case in point is a person who did their own return using Turbo Tax, and had a form that they did not know how to apply. They ignored the 1099 and saw that they would receive a large refund, due mainly to an earned income credit. They filed the return sometime in September and received their refund. The following year, the IRS noticed that they did not report the $12,000 and recalculated the return, as it should have been filed. Reality struck hard. With the additional income, the client was no longer entitled to the Earned Income credit and owed the government money. Since she owed the government money, and had filed late and without requesting an extension, the failure to file penalty kicked in. She had to pay an additional $675, simply because she failed to request an extension. Of course, in that return, she also had to repay the amount of the earned income credit and signed up for an installment plan, which lasted forty-eight months.
If you owe money, but cannot pay at this time, there are options available to help you . Not filing is not one of them.
Why You Should File
Most taxpayers do not have to file a tax return if their income is less than the standard deduction plus the personal exemption. That means, for a single person, the first $10,000 of income is tax-free. However, if you had any tax withheld from your job, and want to claim a refund, then you must file. If you are entitled to any credits, you must file a tax return in order to claim them.
The IRS has said that for the 2010 tax year, they are still waiting for taxpayers to claim their share of the 760 million dollars, and the final date to do that is April 15, 2014! Maybe some of it is yours?