Tax Return Preparation

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Who Should File a Tax Return?

Most citizens who work in the United States need to file a tax return. You don't have to file an IRS tax return if your total income in a particular year does not meet specified criteria. The amount of money you can make before you must file a tax return is determined by the sort of income you receive, your age, and your filing status. To see if you need to file a tax return, go to the IRS website.

Why Should You File a Tax Return?

Get your refund: When you file your tax return, you may be eligible for a refund. The IRS will not send a refund if you fail to file your return.

By filing an accurate tax return on time and paying any tax owed correctly before the deadline, you can avoid interest and penalties. Even if you can't pay, you need to turn in your work on time or ask for an extension to avoid getting more debt.

Build your credit: If you file an accurate tax return on time and pay any tax you owe in the proper manner before the deadline, you may avoid having a lien placed against you.Liens can make it harder for you to get a loan.

An accurate tax return is usually required when applying for help with education expenses. This is true when it comes to co-signing with your child for a student loan.

Increase your social security benefit: If you claim your self-employment income on your tax return, it will be taken into account when calculating your social security benefits down the road.

Required for a Loan: Lenders will check your tax return when you ask for a loan to determine your interest rate and if you can repay it. If you do your taxes right, you might be able to get a loan with a lower interest rate and better terms for paying it back.

What are the due dates for filing one’s tax return in almost all cases?

• 15th of April
• March 15th, 2011: Form 1120 series for corporations:
• Partnership Form 1065 series: March 15th

What Happens If You Do Not File a Return?

An average of 900,000 Americans each year fail to file their federal tax returns. So, what exactly does the IRS do in response? Basically, the IRS has established the Substitute for Return Program to assess tax amounts owed by the non-filer and to also calculate non-filing penalties and interest.

What Are the Tax Penalties and Interest for Filing Late Returns?

The IRS generally assesses interest and penalties when returns are filed late. The penalty for filing late is generally 5% of the taxes you owe per month for the first 5 months, up to 25% of your tax bill. In addition, the IRS will also charge interest until you pay off the balance.

What is a Substitute for Return (SFR)?

A Substitute for Return (SFR) is a tax return that the IRS will prepare for you if you didn’t file one on your own. They do this so they can try to collect the taxes that are owed based on the return.

The IRS starts the SFR process by sending you a letter stating that they have not received a return for the relevant year(s) and recommending a tax liability (i.e., an assessment plus additional penalties and interest) based on your income for those years. You have 30 days to file a full 1040, agree to sign a Consent to Assessment and Collection form, or write a return letter explaining why you are not required to file and any other unique circumstances you believe the IRS should take into account.

If you don't answer within 30 days, the IRS will send you a 90-day letter, often known as a "statute notice of deficiency" (SND). This letter advises you that the IRS will assess the tax owed, as well as any penalties and interest, and that you have 90 days from the date of the letter to file a petition with the United States Tax Court. If you don't respond to the SND, the IRS will figure out how much tax you owe and use liens, levies, and garnishments to get the money.

Why is an IRS Substitute for Return bad for you?

In essence, the IRS will create the SFR without applying any deductions or exemptions that the taxpayer would otherwise be entitled to. Assume you're a truck driver who neglected to file a 2020 tax return. All of your 1099s would have been sent to the IRS. Does the IRS know that most of your income was used to pay for fuel? Is it known to the IRS that you had meals and supplies you had to pay for? Make sure to file your return so you get the expenses and deductions you are entitled to.

What is the Statute of Limitations on Unfiled Returns?

Taxpayers may be confused by the tax code when it comes to the statute of limitations for assessment, collection, and refunds. An unfiled return has no statute of limitations, which means the IRS has no time constraint to create a Substitute for Return (SFR).

Once the return is prepared and assessed, the 10-year collection statute of limitations begins. The refund statute of limitations technically does not apply to SFRs, but on a practical level, the issue is moot since the IRS is not known to make SFR assessments for years, and it is clear the taxpayer had an overpayment. In the case of refunds, Sec. 6511(a) and Regs. Sec. 301.6511(a)-1(a) allow three (3) years from the date of filing the tax return or two (2) years from the date the tax was paid, whichever is later.

If you replace a substitute for return with an original return, the statute of limitations will start all over. Once assessed, the IRS will have 10 years to collect.

How do I prepare unfiled tax returns?

If you have unfiled tax returns, you should call the IRS right away to find out where you stand with them. Determine who your case has been assigned to (if applicable) and whether they have already filed a return for you (SFR). You can request and obtain your wage and income transcripts for those unfiled years at the same time you contact the IRS. If you've already received a tax assessment, ask for more time to file for the years you haven't yet completed.

Gather all available information regarding investments and other income, in addition to your W2 and 1099 salary and income transcripts that the IRS may not have, to remedy your unfiled tax returns issue. Remember that any projected payments or other credits to your account for those unfiled years should appear on your account transcript. Check your tax returns for the years in question carefully to see if you are eligible for any credits, deductions, or other benefits.

If you owe unpaid taxes because of your overdue returns and don’t have the money and want to set up your own resolution with the IRS, apply for a payment plan when you file your past-due returns. If you are unable to pay the amount due upon filing of the returns, you may want to explore other IRS options such as an Installment Agreement, currently non-collectable (CNC), Partial Payment Installment Agreement (PPIA), or an Offer in Compromise (OIC).

At Wolf Tax, we'll assist you in repairing, submitting, and correcting any unfiled returns. Our staff will work together to ensure that you receive the best possible resolution for your case. For a no-obligation consultation, please contact us immediately.