Tax pro Lawrence Pon always makes it a habit to check the last three years of tax returns for a client’s new spouse “in case there are some tax planning opportunities or pitfalls,” he said.
One spouse’s tax situation still sticks out.
“The new spouse had not filed tax returns for the past seven years, was due refunds for every year, and unfortunately lost thousands of dollars of refunds for the tax returns beyond the three-year statute of limitations,” Pon, a certified public accountant, told Yahoo Finance.
The anecdote is an important reminder why it’s crucial for Americans to file their taxes, even if it’s years late. In addition to unclaimed refunds, not filing your taxes can give the Internal Revenue Service unlimited time to audit you, and may result in lost Social Security benefits and possible loan denials.
Here’s what to know.
Taxpayers who are owed a refund have three years from the original tax deadline to claim them. Otherwise, the money becomes the property of the US Treasury.
Right now, the Internal Revenue Service is holding about $1.5 billion in unclaimed tax refunds for the 2019 tax year. Due to the pandemic, the IRS moved the deadline to file 2019 tax returns to July 17, 2020, which means the deadline to claim these refunds is July 17 of this year.
Failing to file taxes can also have unintended consequences when it comes to an IRS audit.
“It is important to file unfiled tax returns to get the statute of limitations started, so the IRS cannot audit you beyond three years when your tax returns are filed,” Pon said. “If you never file your tax returns, the IRS can audit you forever.”
For self-employed individuals, failing to file your tax return means that your self-employment income will not be reported to the Social Security Administration. That means you may not receive credits toward Social Security disability or retirement benefits.
Finally, if you’re trying to buy a home, refinance, get a loan, or apply for federal financial aid, you typically need to provide tax returns for previous years. If you don’t file tax returns, it can cause your loan to be denied or delayed because you failed to file tax returns.
If you are afraid you may owe back taxes — and that’s keeping you from filing — there’s hope.
“For taxpayers that haven’t filed 2019 tax returns out of fear of owing tax, last fall the IRS provided relief,” Tom O’Saban, an enrolled agent and director of tax and government relations at the National Association of Tax Professionals, told Yahoo Finance. “Late penalties and interest are only being assessed beginning October 1, 2022 pursuant IRS Notice 2022-36, so there is a bit of a window to get into compliance without severe consequences for filing a late return.”
How to file an old return
Tax forms for 2019 — such as the 1040 and 1040-SR — are available on the IRS Forms, Instructions & Publications website or by calling toll-free 800-TAX-FORM (800-829-3676).
Taxpayers can also request a free wage and income transcript by filing Form 4506-T on IRS.gov using the Get Transcript Online tool. That can help you fill out your tax returns correctly.
Because 2019 tax returns must be paper filed, experts recommend sending it by certified mail to have proof of receipt.
If you need help, the Volunteer Income Tax Assistance (VITA) offers free tax preparation for moderate- to low-income individuals who make $60,000 or less, disabled individuals, senior citizens, or those who have a language barrier.
Ronda is a personal finance senior reporter for Yahoo Finance and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda
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Source: https://finance.yahoo.com/news/lost-thousands-of-dollars-of-refunds-why-it-pays-to-file-your-taxes-even-if-theyre-late-155511464.html