The Importance of Filing Your Tax Return

A tax return is a form that must be filled in for the Inland Revenue (now HM revenue and Customs) with details of things like your income. From the tax return, the amount of tax you are liable for is calculated.

If a tax return is issued you have a legal liability to fill the thing in. If not you will have a £100 penalty issued. Those individuals who complete returns using software are sent a notice advising them that a tax return is due. If a taxpayer is not issued with a tax return but has tax due they should notify HMRC who may then issue a return. Preparing a tax return is one of those things we tend to build up in our minds as a big deal, when it doesn’t have to be. It’s like painting the living room. Prepare and lodge your own tax return electronically.

A tax return is sometimes required for other reasons, for example to check if the correct tax has been paid overall. So if you are sent a tax return, you must fill it in and send it back even if you believe that you have no extra tax to pay. A tax return is a document filed with HMRC that declares a taxpayers liability for being taxed, based on their yearly income. Three outcomes are possible from filing a tax return: either the taxpayer has either been charged too much or too little for their income, or they have been charged the correct amount. A tax return is a form on which you are asked to report your income and capital gains, and give details of reliefs and allowances claimed, for a particular tax year. The tax year runs from 6 April to 5 April, and the tax return covering the year ended 5 April 2008 is sometimes called the ‘2008 tax return’, or the return for 2007/08.It applies to taxpayers who are identified as requiring a tax return and who are issued with a notice to file or a paper self assessment tax Return incorporating a notice to file. It also applies to people who make a claim outside a tax return. If you are newly self-employed it is not enough simply to file a tax return by October 31 for the tax year in which you became self-employed. You must tell HMRC that you have started to work for yourself within three months of doing so – you face a fine of £100 if you don’t. Further, at death, the executor of your estate must also file an Estate Tax return.

HMRC have 12 months from the date of filing the return in which to open an enquiry, provided that the tax return is submitted by the applicable deadline for the method used. If a return is submitted after the deadline for that method, HMRC have up to and until the quarter day following the first anniversary of the date the return was filed, in which to open an enquiry. HMRC may sometimes refer to such cases as ‘investigations’, in order to distinguish them from enquiries pursued under the S9A powers. In such cases HMRC have to rely on the information powers in TMA70/S20 to support the investigation or seek a Regulation 10 notice (General Commissioners (Jurisdiction and Procedure) Regulations 1994 – SI1994/1812) from the Commissioners in an appeal hearing. HMRC’s local office structure has been dismantled but the new structures do not appear to provide adequate support mechanisms. There is little doubt that this issue is the biggest single cause for concern among tax technicians and accountants, who represent the largest number of qualified tax advisers in the UK, many of whom deal with HMRC on a very regular basis. Remember that if you do file your tax return on time and do not breach rules you are far less likely to attract the attention of the HMRC investigators.

All About Filing Delinquent Tax Returns

If you are a non-filing taxpayer, it’s important to know the steps to take to become current with your tax return obligations. There are many things to consider when going forward and filing returns that are past due. The longer you wait to file your returns, the more interest and penalties you will accrue. The best time to become current is always as soon as you possibly can.

Delinquent returns should be as accurate and conservative as possible. These returns are going to be under greater scrutiny with the IRS and it’s important that you not take deductions if you cannot prove you are eligible. Better to be extremely conservative and avoid being audited.

Proving Your Income

It is extremely important that you are able to actually prove the amount of income you are claiming on your delinquent tax returns.

There are a variety of ways to accomplish proving your income on a delinquent tax return, these include:

1. Indirect Net Worth Method

2. Indirect Expenditures Method

3. Indirect Bank Deposits Method

4. Transaction Method

5. Form W-2

6. Form 1099

7. Financial Statements

8. Deeds

9. Credit History

10. Credit Reports

11. Phone & Utility Statements

12. Credit Card Statements

13. Bank Statements

You should try and put together any and all the information you can gather to prove the income you are stating on your delinquent tax return. The more information you have, the better your situation will be in case of an audit.

Should I File One or All Of My Delinquent Tax Returns?

Legally you are required to file all returns that you did not file in the past. Some attorneys and CPAs will recommend that you only file six years of delinquent returns because of the statute of limitations for prosecuting taxpayers for not filing their return. However, there is no statute of limitations for assessing tax on tax returns that were never filed. That is why it is in your best interest to file all delinquent tax returns as soon as possible.

Even though you are recommended to file all delinquent tax returns, some may be harder than others to accurately assemble. If it has been many years and you are unable to honestly and accurately state your income, then it may be in your best interest not to file that return. In these situations, the IRS will investigate your ability to file a specific return and make a judgment call on whether they will require you to file it or not.

The Process Of Filing Delinquent Tax Returns

There are two ways to file your delinquent tax returns. One is through the IRS Service Center and the other is through the Automated Substitute for Return Unit. Once you submit your return through one of these systems the IRS will send an invoice for failure to file, failure to pay, penalties and interest.

The IRS is limited to one inspection of your books and records per tax period to determine the correct tax to assess you. This may include additional contact from the IRS to verify information or ask additional questions about a specific part of your return.

If your case is already in the collection process and your tax return resolves the issue, further collection efforts will stop. However, tax will be immediately assessed and interest will begin to accrue. If a Revenue Agent or Officer is involved and they are attempting to collect back taxes from you, make sure they are aware that you have filed your returns. This will show them that you are attempting to become current and will stop them from filing liens and levies against you.

Filing Business Delinquent Tax Returns

In most cases, a delinquent business tax returns will be handled by a Revenue Office or The Automated Collection System. The Revenue Officer will visit your business and try to collect information from you regarding your delinquent return(s). The Revenue Officer will then assign the taxpayer a due date for filing his delinquent return(s). If this deadline is not met, the taxpayer is considered to have willfully not filed his returns.

In situations where the taxpayer is not filing their returns like they are requested to do by the IRS, their case may be forwarded to the Examinations division or the Criminal division of the IRS.

Prior Years Tax Returns – 2 Tips to Prepare Your Prior Years Tax Return at Low Cost

If you have have not filed your tax returns for a while you might owe the IRS back taxes. But on the other hand, you actually might have had money coming to you but you just neglected to file your taxes. Either way if you have not filed a prior year tax return, it is always a good idea to file it now and get out of the rut.

Now how do you go about filing a prior year tax return? You have a few choices-

Choice #1 Contact a CPA. You can always find a good CPA if you look up your yellow pages. Maybe you already did that first. Well CPAs are expensive, especially when you file a prior years return – but this is the option to pursue especially if you are totally lost, do not have documents or are not confident enough. But if you have ever self-prepared a return ever you could easily prepare your prior year return. Even if you have not prepared a tax return yourself, if you are reasonably confident in your abilities, you can try doing this yourself.

So how do you file a prior year tax return yourself?

Choice #2- Use An Online Tax Service

One of the newest trends is to prepare your tax return using services like turbotax or taxcut directly on their websites. But even better, to do your prepare your prior year tax returns using online tax preparation sites. Only a few tax vendors specialize in filing old tax returns online.

Do not confuse between the terms ‘online filing’ and ‘e-filing’. E-filing is the IRS system to file your taxes electronically. Online filing allows you to prepare your tax using a website from an irs approved vendor. Online filing vendors also makes use of the IRS’ efile system to submit your tax return to the IRS. However, ‘e-filing’ is available only for the current years tax returns – it is not available for prior year tax returns.

Using online tax filing service is stress free and cost effective way to prepare your prior year tax returns There is no software to install so even someone with limited computer experience can do it.

Choice #3- Use Old Tax Software

Perhaps the cheapest option of all is to use old tax software. You can use older titles from prior years to prepare your tax return. So lets say, you find Turbotax 2002 or Turbotax from 2003 or even Turbotax 2007, you can load this up on your computer and walk through the steps to prepare your return. Most tax software have interview style questions – just like a tax professional would ask. This makes it easy.

Once you walk through the steps, you can print out the tax return on the tax forms that will be the exact same format as the tax return from the prior year. That is the beauty of this. You do not have to run around trying to find tax forms from prior years – the forms are built into the tax software. Using Old tax software to prepare your prior years tax return can save you a ton on money in tax preparation costs if you are reasonably confident in your abilities to use a computer.