For all of you that think you won’t owe taxes if you don’t file a tax return I have news for you. The IRS will file a return for you and chances are you will owe more when they file for you than if you just bite the bullet , gather up your information and prepare your return.
There are several reasons why the IRS will show you owe more. When they file for you they will chose Single or Married Filing Separate. They cannot use Married Filing Joint because tax law only allows this filing status when taxpayers elect to use it. You will only have one exemption, if they cannot elect to file as Married Filing Joint it stands to reason they cannot elect to claim any children. And finally they will use the standard deduction. Rarely does the IRS receive any kind of information return for deductions and therefore they would not have enough information to itemize for you.
They do however receive all kinds of information forms on how much money you earned. They receive forms for your wages as an employee, your income as a contract laborer, your interest & dividends earned, and any income you have flowing through from Partnerships, LLCs or S-Corps you are invested in. Just in case you think you have the system beat by being a self-employed individual and not filing a tax return for your Partnership, LLC, or S-Corp, think again. They will file a return for your business as well and again they will not claim any deductions!
The IRS will file a return for you when you are 360 days past due. Initially they will send a 30-day letter notifying you that they do not have a return for you on file. The letter will provide the information they do have on file for you and the amount they estimate your tax to be. You have 3 options: 1) Respond by sending in your version of your tax return with a cover letter, 2) Consent to their assessment, sign date & send in a check, or 3) Respond with a statement explaining why a return is not required to be filed.
If you do not respond to the first letter, a second letter will be sent. It is known as a Notice of Deficiency. It shows the amount of tax due plus interest & penalties and advises you that you have the right to appeal to the US Tax Court. So now you have 4 options. The same three as before plus you can opt to go to Tax Court. If you still neglect to respond your account is then sent to collections, and the real fun begins with liens and levies.
Some of you may be saying. I have never received a letter and I haven’t filed in the last 10 years. If you haven’t received a letter then it is because the IRS thinks they owe you and they do not send out automatic refunds. You must file a return in order to receive your refund and you must file it within 3 years of when the return is due otherwise the IRS keeps your money.
My question is why go through this hassle? Surely it is easier to gather up your information, prepare your return and file it with the IRS. Even easier, hire the preparation done by a qualified professional!