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Guide to Tax Law
- Introduction to Tax Law
- What is the IRS?
- Rights of Tax Payers
- Tax Free Income
- What is a Tax Credit?
- Tax Implications of Differed Income
- How Tax Deductions Work
- Recucing Your Taxes with Investments
- Tax Benefits for Homeowners
- Shifting Income withing a Household
- Your Status as a Tax Payer
- Small Business Owners and the IRS
- Minimize Taxes on Your Estate
- Tax Fraud and other Crimes
- Red Flag: IRS Audits
- Taking Your Case to Tax Court
- What if Your Owe the IRS?
- When to Hire a Tax Attorney
How often are tax returns filed? What is the normal process for filing taxes? If required to file taxes, individuals must complete their filings by April 15th every year. If it will not be possible to file by April 15th on any given year, the taxpayer must file and extension request, also known as IRS Form 4868, in order to extend the filing time by 6 months, giving the individual until October 15th of that year to file.
Individuals must file yearly tax return in they earn income over $5,350 in any given year. For unearned income, such as earned interest or dividends on investments, the threshold for filing is $850 per year.
3. Once completed, Federal tax forms can be mailed, or submitted online free of charge.
For state taxes, the forms can be mailed, or in some states, filed online in the same way that Federal forms are filed.
Tax Forms
For individuals, filing joint or individually, the forms include:
- Form 1040 – US Individual Tax Return
- Form 1040A –
- 1040EZ – Income Tax Return for Single and Joint Filers with No Dependents
The applicable schedules and accompanying forms to file with the individual Form 1040, 1040A or 1040EZ are as follows:
- Schedules A&B – Itemized Deductions & Interest and Ordinary Dividends
- Schedule C – Profit or Loss from Business
- Schedule D – Capital Gains and Losses
- Schedule EIC – Earned Income Credit
- Form 8888 – Direct Deposit of Refund to More than One Account
- Form 2441 – Child and Dependent Care Expenses
Filing Late
For taxpayers who file their Income Tax Returns late, the IRS will assess interest on the late payment that is compounded daily. The interest is charged on any unpaid tax starting from the date the payment was due and compounding daily until the date the payment is made. The IRS charges an interest rate of the short-term rate plus 3% on returns filed late.
Penalties for Late Filers
For taxpayers who filed their tax returns on time but who did not make the applicable payment on time, a late payment penalty will be assessed by the IRS. Generally, the late payment penalty is 0.5% of the amount owed for each month or partial month that the payment remains late after the original due date. The late payment fee cannot exceed a total of 25%.
If a taxpayer can show a reasonable cause for the failure to pay on the due date, the IRS may waive the late payment penalties. For taxpayers who neither filed nor paid on time, a failure to file penalty will be added to the late payment penalties. The breakdown is as follows: 5% total penalty, 4.5% late filing penalty and 0.5% late payment fee for each month or partial month that the payment remains late after the original due date.
The maximum total combined penalty for failure to file and failure to pay is 47.5% of the total tax owed. The maximum penalty is a combination of the 22.5% penalty for late filing and the 25% penalty for the late payment penalty.
Not Filing a Tax Return
Consequences of Not Filing Taxes
Consequences for not filing a tax return can include both criminal and civil penalties. Criminal charges may be brought against an individual within six years of the date that the tax return should have been filed. Additionally, non-filers can be fined up to $25,000 per year and may also be put in prison for one year for each year of non-filing. If you have any criminal charges filed against you it is highly advisable to contact a criminal tax attorney as soon as possible.
Civil penalties include assessing interest of taxes due for the entire period of time for which they are outstanding. While criminal consequences are limited to 6 years, civil penalties can accrue indefinitely.
How the IRS finds Non-Filers
The IRS usually finds non-filers a year or two after the tax return should have been filed. The IRS uses a proprietary software system called Information Returns Program ("IRP").
The IRS discovers tax evasion by matching W-2 wage statements and 1099 income reports from the employers or people who paid the individuals during that year. The IRS then matches the W-2 and 1099 information with the tax returns of people that filed in that particular tax year.
The IRS is alerted of a non-filer when the IRP is unable to find a return to match a W-2 or 1099. The outcome of the IRP notification is that a Taxpayer Delinquency Investigation is commenced to assess the specific potential non-filing problem.
Requesting an Extension to File
order to request an extension for filing taxes, and individual must complete the paperwork for filing an extension. Once completed and filed, the IRS will give taxpayers an automatic six-month extension within which to file.
In order to complete the extension paperwork, taxpayers must estimate their total tax liability for the prior tax year. Additionally, taxpayers must know how much they have already paid in the form of withholdings from paychecks, as well as estimations of money owed. If a taxpayer owes money, they will be required to pay at the time they file the extension.
Filing Taxes While Living Outside of the U.S.
For Americans who are living abroad and have an income, a yearly tax return must still be filed with the IRS. Additionally, Americans who are working abroad are required to either have their taxes withheld from their paycheck or they must pay quarterly estimated taxes; if they do not do so they can be charged with offshore tax evasion.
However, some Americans working abroad may qualify for:
- Foreign Earned Income Exclusion of $80,000 a year (in 2005);
- Foreign Housing Exclusion;
- Foreign Housing Tax Deduction.
For more information, see IRS Publication 54, "Tax Guide for U.S. Citizens and Resident Aliens Abroad".
Filing Your Taxes Online
Many U.S. taxpayers can file their taxes online and free of charge. Online filing has an automated system that does the applicable calculations for the taxpayer and submits the report directly to the IRS.
The result of using the online system is that the process significantly cuts down on errors – which save the IRS time and money. Additionally, online filing often yield taxpayer refunds within 10 days for those who utilize the direct deposit option.