The Tax Tutor

Many business owners, for one reason or another, have not filed tax returns for previous years.  Now they may be afraid to do so, but it’s not as bad as you think.

First let me say that you should file a return every year whether you have the money to pay any tax due or not.  The failure to file penalty is 10 times larger than the failure to pay penalty.  The IRS will work with you to come up with a payment plan you both can live with.

If you haven’t filed a tax return for previous years, all is not lost.  You should file a return as soon as you can in order to a) claim any refund due and, b) stop the accrual of the failure to file penalty.  You have only 3 years from the due date of a tax return to file for a refund or claim certain credits such as the Earned Income Credit.  After that, they are lost.

Also, there is no statute of limitation on a non-filed return.  In other words, that tax year or years remain open until a tax return is filed.  Normally, the statute of limitations is 3 years from the due date of the return, including extension, or when the return is actually filed.  If income is understated by more than 25%, the statute of limitations goes to 6 years.  And if the IRS can prove fraud, there is no statute of limitations.

All in all, it is in your best interests to file a return every single year.  So, it you’ve missed a couple of years, seek out the cousel of a competent tax professional and get those returns filed!

This entry was posted on Sunday, February 21st, 2010 at 7:23 pm and is filed under Business Tax Tips. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.