Personal Income Taxes
What Are Personal Income Taxes?
A personal or individual income tax is levied on the total income of the individual (with some deductions permitted). It is often collected on a pay-as-you-earn basis, with small corrections made soon after the end of the tax year. These corrections take one of two forms: payments to the government, for taxpayers who have not paid enough during the tax year; and tax refunds from the government for those who have overpaid. Income tax systems will often have deductions available that lessen the total tax liability by reducing total taxable income. They may allow losses from one type of income to be counted against another. For example, a loss on the stock market may be deducted against taxes paid on wages.
Should I Hire Someone To File My Personal Income Taxes?
Hiring a CPA to prepare your tax returns reduces the risk of inaccuracy in your personal income taxes that you file with the IRS. Because the tax code is so complicated, more than 60% of Americans have professionals do their tax returns. Tax law has had major changes in 45 of the past 48 years. Last April, IRS Commissioner Douglas Shulman reported that there had been about 3,500 tax law changes since 2000.
What Are The Penalties For Not Fiiling Taxes?
Tax evaders often face large criminal penalties, including fines and imprisonment, as well as civil penalties. Filing taxes isn’t voluntary. If you make over a certain amount each year you are required to pay a tax on that income. This requirement is clearly set forth in section 1 of the Internal Revenue Code, which imposes a tax on the taxable income of individuals, estates and trusts.
What Happens If I Do Not File My Personal Income Taxes?
The IRS may file what is known as a substitute return for you. However, as you well know, the IRS will not be looking to save you any money. In fact, a substitute return will not include any of the standard deductions your accountant would typically include in your return. Case in point, a substitute return only allows one exemption: single or married filing separate, so you end up with higher tax liability than if you would have just filed.
The bottom line is, there are numerous reasons to file your tax return even if you cannot pay, including:
- avoiding or minimizing the failure-to-file penalty;
- avoiding having a substitute return filed by the IRS, and allowing you to take your adjustments, deductions and exemptions that are not calculated on a substitute return;
- starting the statute of limitations (in most cases, three years) for a possible audit of your return. This basically means the IRS only has three years from the date you file to audit your return. However, that three-year time limit does not begin until you file.
- starting the statute of limitations (ten years after assessment) for collection of the tax, interest, and penalties on your return. Again, this means the IRS cannot collect the tax, interest or penalties after ten years from the date you file. However, if you don’t file, the ten year expiration clock won’t start ticking.
If the IRS finds that you owe them money, they will send you a bill called a Notice of Tax Due and Demand for Payment. This bill includes the taxes you owe, plus interest and penalties. Because interest and penalties continue to accrue, you are encouraged to pay your tax bill as soon as possible. The IRS accepts payment by credit card, electronic funds transfer, check, money order or cash.
What If I Can Not Pay The IRS?
Your best bet is to always pay as much as you can to reduce the amount of interest and penalties you’ll owe. Call, write or visit the nearest IRS office to explain your situation. You can set up a payment plan or possibly an offer in compromise. The IRS will expect to be paid and if you fail to pay they will collect their money by filing a lien and or levy on your accounts and property.