The IRS provides an opportunity to taxpayers to file tax returns months or even years after the required deadline. Such delayed returns do come with various consequences, but they can also enable a taxpayer access to various tax related benefits.
What Happens when You Do Not File
If you do not file a return in a given year, the IRS generates a substitute return based on the information that they have from third party sources. Since a copy of Forms W-2, K-1, and 1099, among other tax documents, are sent to the IRS, they are able to come up with a substitute return with these. However, the IRS does not include reliefs that you may be entitled to. Once the IRS generates the substitute return and determines your tax liability, they commence the collection process to recover the taxes due.
Why You May Need to File a Late Return
There are various reasons as to why you may need to file a tax return for past tax periods:
- Not Required to File – If you are not required to file a tax return because of the threshold of your income, you can still file such a return to claim various tax reliefs. You can file returns for as far back as three years. Such a return does not attract any penalties as filing a return was not required in the first place. The taxpayer can in such a case get refunds for various reliefs that were unclaimed over the period.
- Claiming Tax Reliefs - If a substitute tax return was used and you were denied various reliefs that you were entitled to, you can file a late return to claim such tax benefits.
- Mitigate Losses – The penalty for not filing a return is usually much higher than that of filing late. Furthermore, the later you file, the higher the penalties charged and interests in case there is some outstanding taxes. Therefore, to mitigate on the losses that would arise from further delays or from not filing, it may be wise to file sooner than later.
- Social Security Benefits – For those who are self employed, they will need to file a return in order to get the Social Security benefit. This is because the Social Security Administration gets its information of Social Security for self employed income from the IRS. Therefore, to access such funds, one may be required to file a return, even though this is done late.
- Accesses to Credits – If you are looking to take a mortgage, business loan and many other loan types, your financier may require you to provide evidence of having filed your returns. Therefore, in such a case, you may have to file a late return so as to access such credit
- Apply for Education Federal Aid – Various federal educational grants and reliefs require one to have filed a tax return. Therefore, if you wish to apply for such aid and did not file a return in a given year, you may have to file a late return so as to qualify.
Filing the Late Return
For you to file a late return, you will need to access the required Form 1040 and fill out the information of your financial transactions for the year that you are filing for. You may need to collect the various tax documentation such as pay-stubs, W-2, 1099 forms, bank statement for the said year so as to recreate the late return. It may be advisable to seek the help of a professional when filing a late return. Filing late may attract penalty charges that are debited onto your tax account. If you owe taxes, the IRS will also include this and charge interest.