The deadline for taxpayers to file their tax return, if an extension was requested, is October 15. It is reported by the IRS that an estimated 11,000,000 taxpayers do not file their tax return each tax year. As a result, every tax year million of taxpayers leave unclaimed money for the Treasury.
There are some taxpayers who still file paper returns and did not request direct deposit. Consequently, some errors are more likely to go undetected and some checks went uncashed. An estimated of more than 2 million paper refunds, totaling $1.2 billion, went uncashed over a 2 year period. As reported, each year, almost 700,000 of uncashed refunds were under $50.00.
Taxpayers could potentially leave money to the Treasury when they do not file their tax returns. The Internal Revenue Service and the Treasury are still waiting for some individuals to claim their stimulus payment because billion of dollars are still available to be paid. Many taxpayers who did not file have refunds unclaimed left for the service. Those refunds could not be claimed after 3 years, except under special circumstances.
The IRS has authority under the law to prepare a substitute tax return, called Substitute for Returns (SFRs), on taxpayers’ behalf when they did not file. When that is the case, the taxpayer lost any deduction and credit that she may be entitled to. Taxpayers should still file their own return after the IRS has prepared a return for them to claim the deductions and credits and to start the statute of limitations. The statute of limitation rules does not exist in cases of 1) taxpayers failure to file a return and 2) assessment and collection of taxes on SFRs.
It is important for taxpayers to file their returns for several reasons:
- At least 2 years of tax returns is required for real estate purchases.
- A tax return is needed to file for student loan.
- Proof of tax filing compliance is needed for transactions with different government entities: local, state, and federal.
- Taxpayers need to be in compliance for the past 6 years to obtain an abatement, an installment agreement, an offer in compromise from the IRS.
- A tax return might be needed to apply for a loan.
- and so on…
It is important to file your tax return even when you might not owe or do not need the refund because you never know when you would need proof of tax compliance or proof of income.
Be proactive when it comes to your tax return. Do not wait until a proof tax compliance or income is needed for it might cost you much more and further, you might not be able to get it a the time needed.
A professional tax return preparer could, in many instances, assist taxpayers or businesses in the reconstruction of their income and expenses in cases where they do not have record or in cases where their record keeping is not sufficient.
Do you know that you could reduce your tax liability by proper tax planning strategy as individual or business owner?
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