We all do not like filling taxes, but they are important. The IRS has been cracking down recently on those who did not disclose information about offshore accounts. Now the IRS is cracking down on those who don’t file a tax return and even those who have filed a tax return, but the IRS never got the information in the mail.
When you don’t file your taxes, you may be heading towards the slammer. If not the slammer, then a hefty fine and a notice from the IRS about your missing tax return. Individuals are told to file tax returns on April 15 or on October 15 if the deadline extension was requested. The Treasury Department says that the IRS needs to improve their corralling of those who do not file a tax return. So why is this crucial? Well the IRS forgot to get on the cases of nearly 2 million US citizens who have not filed taxes within the year 2012 and 2013. This means that the debt and missing taxes has increased to nearly $7.4 million this year. That is a lot of money that went missing when those people did not file a tax return. How did this happen? It happened because they did not meet the deadline in time or they let the extension expire. But how did the Tax Administration see it and not the IRS? The answer is very simple; there was an error in the computer programming.
But what about filing early than April or October to get your tax returns to the IRS before time is up? Filing your taxes early is a good thing to do. However, this year the refunds you might earn back could be coming out much later next year. Nearly 150 million Americans file a tax return. But only 80% of those taxpayers get a refund of their money. That amount is staggering for one, but the other shows that overpaying your taxes could cost you some retirement savings. As of August of this year, a study done showed that we are only saving half of what we could save up for retirement 50 years ago. But when we overpay our taxes, waiting for that check is like waiting for your next meal, it will take quite a long process. Yet, as a savvy and smart taxpayer, you should have known that overpaying your taxes means the government held onto the money as a cash interest free-basis. If you had some of that money that you got from your tax refund in your savings, you could have paid off your debt a lot quicker and easier too.
But how does this tie into the later tax refunds? After you have filed your forms and have updated your tax number, the IRS issued a press release stating that individuals who have filed their taxes in 2016 should look at their withholding tax for this year because new fraud-detection tools will be firmly in place for next year to catch fraud on the Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC). These tax credits could be very little or very large, depending on your income. But the IRS has estimated that nearly 30% of these tax credits claims were paid in errors each year. Last year the IRS made nearly $16 billion in error payments to the EITC tax credit alone. You can file your taxes on time next year. But the Protecting Americans from Tax Hikes Act (PATH) requires the agency to hold a taxpayers’ entire refund until at least mid-February if they’re claiming the EITC or ACTC. The IRS withholding your refund will allow them time to review a case-by-case claim for these tax credits to hunt down fraud and identity theft.
How would this affect me? For lower and middle class Americans, the IRS recommends you alter your withholding tax by filing out the W-4 form. By altering this withholding information you can see how much or how little the federal government withholds from your paycheck. If you expect a large tax refund but you don’t know if you qualify for the tax credits, EITC and ACTC, lowering your tax liability now could help you boost your paycheck for the remainder of the year if your tax refunds have been delayed. But always consider whether or not you need to adjust your W-4 to collect more now rather than later, sometimes things happen in your life that go as planned or unscripted.
But what about if I filed the return but I get a notice from the IRS? We all agree to disagree, but in a recent bankruptcy case, a woman successfully filed a tax return and won her argument. She proved in the court and the court acknowledged that she did file a tax return. But how could the IRS miss her tax return? It started 30 years ago in 1985, with a little known incident where IRS employees took matters into their own hands. Today it seems that many of the IRS employees are not familiar with the incident, but some of the employees who were around between 1985 and 1986, remember the incident very well.
In regards to the bankruptcy case, the woman did file a tax return after the due date. When this happens, the IRS can put the later returns to the side and work on those who have continued to turn in their paperwork at the proper time. However, her tax return was lost in the IRS because while it was late in being filed, it also was lost because of how late the paperwork was sent to the IRS; it was filed many years too late. The case does go onto to say that she did not file her taxes after her tax return was lost in 2006, which was the ground for the case in court. The court eventually ruled that the woman did file a tax return in 2006, after several years of non-filing left her with 80% of her paycheck being taken out in taxes for the course of a few years, and that the IRS waited two years before filing her bankruptcy petition. The court discharged the woman’s liability for her 2006 tax return, together with the remaining years for which she late-filed her returns.
It is important to file early and to update the W-4 form whenever you can. Because if you do not get your tax return filed before the deadline, you might get into a habit of non-filing or you may end up waiting for a large refund later in the year because there might a potential case of fraud.