A recent TaxQuips question was from someone whose Supplemental Security Income checks were about to be levied by IRS because he had not bothered to file tax returns for 2006 and 2007 - http://www.taxquips.com/index.php?id=1306 .
Two tax professionals start the discussion about the need to file tax returns - and adds some tips. Terrific!
Seeing all this, and hearing about Eunice Shriver's death, reminds me of story. A lovely young woman, a member of the Kennedy clan, comes into my office one day in tears. She hands me some IRS notices demanding nearly $200,000 from her in taxes, penalties and interest for a year when she had not filed a tax return. She wails, "I can't afford to pay this much money. What do I do?"
Digging through the pile of correspondence from IRS, many of which had never been opened, I finally the original request to file the tax return. (No, not a CP-2000 notice. Those come after you file a tax return.)
It seems, in that year, her broker reported about $300,000 worth of securities sales. I got her calmed down and we called up her broker and asked for a report showing the basis of the stocks sold. It arrived a couple of days later - and I prepared the tax return. It showed capital losses well in excess of $30,000.
I also got a power of attorney and requested copies of all the 3rd party filings (W-2s, 1099s, etc.) to ensure we reported everything IRS had on record.
Naturally, she didn't owe a dime. In fact, since she had some W-2s with withholding, she ended up with a refund. Quite a turnaround from owing over $200,000.
No doubt, this has happened to you, on one scale or another, many times. It feels great to be a hero, doesn't it?
We can perform miracles - if only people will come to us for help.
The problem is, people don't really understand the need to file tax returns. They get contradictory messages from IRS. IRS doesn't want a surfeit of paper. They don't want tax returns that don't need to be filed. So they actively discourage people from filing if their incomes are below the filing thresholds of standed deductions combined with personal exemptions.
So, people who know they've earned less than that, especially after market losses, don't bother to file. After all, IRS told them not to.
TaxMama's® philosophy has always been to encourage everyone to file a tax return - purely to close the statute of limitations on audits. That generally takes care of the problem. The IRS may not like that philosophy; but it certainly protects the taxpayer!
My question is, how can we educate folks that when they have securities sales, or small businesses with profits over $400, that they need to file a tax return?
- 1495 reads
Filing tax returns you don't have to file
Actually Snazzy, you bring up a good point.
Am I charging for the unnecessary tax returns?
Nope. It's a service I offer my senior clients.
Some accept the gift. Others adamantly insist on paying.
But remember, through the Free File Alliance and VITA and TCA, anyone who fits this economic profile can get their tax returns prepared for free.
Unfortunately, VITA is apt to tell them they don't need to file and send them away.
But, if you've seen the problems that arise 5 or 10 years later for people who have not filed their 'unneccessary' tax returns, you'd be adamant about advising them to file, too.
Often, some odd thing will turn up, usually on the state level, and the tax authority will assess some outrageous tax. The taxpayer no longer has the records. Didn't need them, since they didn't need to file. And now it's hard to prove a negative - that they didn't need to file.
It's much easier to file the returns and close the statutes.
Thanks for bringing this up.
Best wishes
Eva Rosenberg, MBA, EA
Your TaxMama®
Filing tax returns otherwise not needed
Shame on you TaxMama(R) - that is unless you are preparing FREE tax returns for those taxpayers who absolutely do not need to file.
And as far as a client who is having SSI levied for failure to file, they obviously had a filing requirement.
So, my advice to all is: Consult with a tax professional (CPA, attorney or EA) to determine what your filing requirement is and disclose ALL potential sources of income. However, if you truly don't have a filing requirement do NOT pay to have a tax return prepared.