You may think that handling your taxes can be put off until tomorrow, but this can be an invitation for trouble. For starters, "tomorrow" has a strange way of turning into next month or next year – or never. If you take the position that filing your return is inconsequential, you're wrong.
Exponential problems occur from neglected taxes, on both a federal and state level. To make matters worse, the full import of the issue may become apparent at a time when you are ill-equipped to deal with it. Before you decide to indulge in a laissez-faire attitude about your taxes, consider some worst-case results:
Fears of an Audit
A common concern among taxpayers – even ones who have little reason to worry – is facing an IRS audit. Many misconceptions exist around what will trigger an audit, but there are some simple truths that you can rely on. For instance, not preparing your tax returns on time, especially if it becomes a habit, can put you on the IRS' radar. This principle also applies to state income tax returns, when applicable (check your state for requirements). When your federal or state government detects that you earned income which you failed to report, they can put your affairs under the microscope…and can end with you owing a steep bill.
When you don't prepare a return, the IRS may do it for you. While you're generally afforded some time to catch up if you're running late, eventually a Substitute for Return can be filed. As an example, if the IRS has income details provided by your employer, bank or broker, they can prepare a return to determine any potential liability. This is hardly ideal, though, because the IRS will not include tax credits or deductions for which you may be eligible. These breaks can reduce your liability substantially, particularly if you're a contractor. Getting your returns in on time can help you avoid receiving an unwanted substitute.
Debt by Default
It's a foregone conclusion that if you owe a tax bill past the filing deadline, the balance becomes a debt by default. You can't take this for granted, assuming that you'll simply pay what you owe (and catch up on your filing) when you get around to it. Adopting this strategy will only mean a higher debt. The reason for this is simple: failing to pay what you owe by the due date leads to additional charges, in the form of penalties and interest. These fees are not to be taken lightly, as they can turn what was a manageable balance into a financial burden.
If you neglect your taxes for long enough, the IRS can take the position that you're willfully evading your responsibilities. In addition to a sizeable tax bill, you can be subject to legal action (failing to file is a crime). While you may not pay the ultimate price for your inaction, you can't afford to take the chance, either. You don't have to worry about IRS reprisals, so long as you resolve your tax issue before it's too late.
How to Recover
If you're behind on your tax returns or you already have an assessed balance, you may want to consult with a licensed tax professional. Since you want to take advantage of an affordable resolution, you owe it to yourself to understand all of your options. A licensed tax professional can provide guidance on how to proceed and, if necessary, execute a swift solution. An unattended tax problem is something you have to take seriously; sooner rather than later.