When it comes to filing your income taxes, procrastination really can cost you
April 15 has passed and you didn't file your 2007 taxes. In fact, it's been several years since you've filed a return. You're not sure if you owe or were due a refund, but as the years go by, you just can't seem to overcome inertia.
Or you worked through your return and you know you owe money, but you didn't file because you were broke. Or perhaps you're hoping that the Internal Revenue Service won't catch up with you.
If you fit any of these descriptions, it's better to come forward and work out a deal than to get that fateful letter laying out the penalties for not filing your return on time and failing to pay promptly.
"We have a saying that in the tax arena: Procrastination costs," said Beanna J. Whitlock, executive director of the National Society of Tax Professionals.
The IRS can impose a number of penalties for tax scofflaws, ranging from civil fines to imprisonment for criminal tax evasion. Consider the recent case against actor Wesley Snipes, who is facing a possible jail sentence and $5 million fine.
Here are the various penalties:
If you haven't filed in years, one reason to do so now is that you may be due money. But there's a short window of opportunity to collect; you have to claim it within three years of the date the return was due.
Whitlock, who has a tax practice in San Antonio, said she had one client who hadn't filed in 34 years. The IRS finally caught up to him because the man's employer electronically filed a W-2 form.
Whitlock said her client was not subject to penalties or fees because he was due refunds, but he lost about $25,000 to $30,000 because of the three-year rule.
If you're self-employed, here's another reason to file. If you don't, you will not receive credits toward Social Security retirement or disability benefits.
If you haven't filed because you don't have the full amount due, file and pay what you can. Keep in mind that the unpaid balance is subject to interest compounded daily and a monthly late-payment penalty. If the IRS does realize you haven't filed returns, the agency will file a return on your behalf, Whitlock said.
I asked Whitlock what advice she would give to people afraid to file. "Do it so you can sleep at night. Face reality. File the tax return. It may not be as bad as you think."
Michelle Singletary is a columnist for The Washington Post. She can be reached at singletarym@washpost.com.
