Surely as April 15 comes along, some of you will procrastinate in filing tax returns. It can be habit forming as I see the same taxpayers come after April 15 year after year. After four decades of counseling taxpayers, I look back at so many reasons why taxpayers don’t file on time – not having enough funds, missing tax documents, or having a refund anyway. Let’s discuss 10 reasons why you should file on time:
1. You save a penalty for failure to file of 5% per month versus only ½% for failure to pay; therefore, it is better to file even if you don’t have funds.
2. You may need current tax returns for a loan application or loan refinance. Don’t miss this opportunity to lock in 3% to 4% interest rates for the next 15 to 30 years. We may not see these historically low rates again in our lifetime.
3. You may also need to file early to apply for student grants, loans, or aids such as FAFSA.
4. File on time if you have items that you don’t want disturbed in an IRS audit.
5. The statute of limitation for the IRS to audit your tax return expires after three years (five if you fail to report 25% of your income). The statute does not expire if you don’t file. They can get to you anytime, forever actually!
6. Filing on time facilitates offers in compromise or installment agreements. During decades of working with the Collection Division of the IRS, I have experienced an easier time settling accounts of compliant taxpayers, but not of delinquent ones.
7. Request an installment payment plan by filing Form 9465 if you owe taxes of $50,000 or less. Approval is virtually automatic for compliant taxpayers with liabilities of less than $10,000. The IRS has recently been more reasonable in evaluating and approving installment requests.
8. Installment sale reporting is automatic, but don’t use it if you don’t need it. You won’t be able to elect out of installment sale if you don’t file on time.
9. Net operating losses from your businesses are required to be carried back to prior years. You may not want to go back if you had losses in prior years or if you expect material gains in future years. You cannot elect to forego carryback periods if you don’t file on time. Benefits of this election can be substantial and should be planned well with your tax adviser.
10. The Franchise Tax Board charges cost recovery and collection fees. These penalties stick if you ignore them, even if you subsequently don’t owe anything.
In summary: Unless you have better reasons, file on time. Do it for peace of mind. Do it to relieve stress. You’re going to file anyway. Good luck!