I just got done preparing tax returns for myself personally, plus for the law firm, for a non-profit that I’m involved with and a couple of other small businesses that I have. October 15th was the deadline for those of us who got an extension for our tax returns, and I was up to my elbows in tax returns a couple of weeks ago because I really didn’t want to go delinquent on my tax returns. Now that the rush to meet the tax filing deadline is over, it brings to mind some tips or rules of thumb on dealing with Internal Revenue Service (IRS) tax returns as well as Missouri tax returns and Kansas tax returns.
First rule of thumb – always file your taxes on time, even if you cannot afford to pay the tax debt you owe from the return. Many people don’t file tax returns if they cannot pay the taxes due on that return, presumably thinking the IRS won’t come after them if they don’t know about the tax debt. Well, frankly that’s a really, really bad strategy. First of all, taxes become dischargeable, just like credit cards or medical bills, once the tax debt gets to be a certain age (generally 3 years old). BUT, the clock does not start ticking on the aging of the taxes unless and until your file your returns. So, by delaying the filing of the taxes, you are delaying the date when they can be wiped out with a bankruptcy.
Second, if the taxing entity, like the IRS or Missouri Department of Revenue or Kansas Department of Revenue, does not receive a tax return, they will assume you do not have any deductions or exemptions to claim, and they will assume a tax liability well in excess of what you really owe. In my opinion, they do this to get your attention. So, you might expect to owe $3,000 in IRS taxes on your 2013 tax return, but if you don’t file the return, the IRS may assess taxes at $12,000 for 2013. When you get the bill, that may prompt you to file your tax returns to prove to them that you only owe $3,000 in back taxes. So, mission accomplished by the IRS – they got you to file your IRS tax return.
There are many other reasons to file your taxes timely. We’ll talk about those reasons in the next blog post. In the meantime, if you’ve not filed your 2013 IRS tax return, Kansas tax return or Missouri tax return, please do it immediately! It is in your best interest to do so!