I Owe the IRS, So I'm Just Not Going to File

We hear this mindset more often than you might think:

“I owed last year, so I'm just not filing this year.”

It might feel like you're avoiding the problem but you're not. You're potentially making it more expensive.

Owing and Filing Are Two Different Problems

If you're required to file a tax return, not having the money to pay your balance doesn't eliminate the filing requirement.

And this is where one bad tax year can turn into a much bigger financial problem.

• You owe, so you don't file.

• Another year passes.

• You don't file that one either.

• Now you're afraid to see how much you owe, so you avoid it another year.

Meanwhile, penalties and interest can continue adding to the problem. The IRS generally charges a failure-to-file penalty when a required return with unpaid tax is filed late, and unpaid balances can also be subject to failure-to-pay penalties and interest.

Ignoring the IRS doesn't freeze the balance

So file the return, then deal with the debt.

This is one of those situations where fear can make an expensive problem even more expensive.

You don't necessarily need enough money to pay your entire tax bill before you file.

The IRS itself advises taxpayers who cannot pay their balance in full to still file on time, pay what they can, and explore payment options. Payment plans are available for taxpayers who qualify.

That's a much better starting point than allowing one unfiled return to become five, on top of that, paying a professional to have those unfiled tax returns filed.

Tax Problems Can Follow You for Years

We've seen what happens when unresolved tax issues become part of a much larger financial crisis.

By the time someone is considering bankruptcy, they may not just have credit-card debt. There may also be years of unfiled returns and IRS debt that now have to be addressed.

And bankruptcy doesn't automatically erase every tax debt. Whether a particular tax debt can be discharged depends on several factors, including the type of tax, when returns were filed and the bankruptcy chapter involved.

That's why we encourage people to address tax problems before years of avoidance turn them into something much harder to untangle.

If you owe the IRS, don't disappear.

• File the return

• Find out exactly where you stand

• Then build a strategy for dealing with it

A tax problem is easier to address when you stop letting it grow.

TaxCity Advisors

Tax Preparation • Bankruptcy Tax Compliance • Bookkeeping • Advisory

This article is for general educational purposes and is not tax or legal advice. Individual tax and bankruptcy circumstances vary.