- If you happen to miss the normal tax filing deadline, it is important to file your taxes as soon as you can. If you owe the IRS, interest can accumulate on money owed and increase your tax burden over time. According to the IRS, "if a taxpayer is due a refund for withholding or estimated taxes paid, it must be claimed within 3 years of the return due date or risk losing the right to it." Self-employed people must also file a return to get credit for their contribution to Social Security.
- If you owe the IRS more than you can pay, you might think that you shouldn't file a tax return until you can pay the tax in full. The IRS recommends that taxpayers file a return even if they cannot pay the full amount of tax owed because it will help avoid additional filing penalties. The IRS can help taxpayers set up a tax repayment plan or compromise on the tax owed.
- If you are due a tax refund, you will not incur penalties related to filing late. This can make those who are due tax refunds lackadaisical about filing tax returns. The sooner you file your return, the sooner you will receive your tax refund, which you can save or invest to start earning a return. If the IRS holds your tax refund, you can't use it to earn money for you and if you wait more than three years to file, you might forfeit your refund.
- There is no statute of limitations on income taxes if you don't file a tax return. In other words, if you fail to file a tax return, the IRS can pursue you for unpaid taxes no matter how much time has passed since you failed to pay. If you do file a tax return, the IRS must assess a tax against you within 3 years and collect the tax within 10 years of the assessment. If you cannot pay the full amount of your taxes by the deadline, seek help from tax professional instead of filing a late tax return.