Prior Tax, Online Prior Tax Professionals

Remember 2007?

Remember 2007? A snowstorm dumped eight and half feet of snow on Mexico. That’s Mexico, New York, in case you were wondering. Even then, it was one of the hottest years on record since, well, the beginning of record keeping. A tornado hit Manhattan in August, but that was picayune next to the Yankees losing the division to a tribe of Indians from Ohio. Sales of the iPhone launched that summer took off and haven’t returned to earth since. And, how could we forget, Lindsay checked into rehab, Paris went to jail, and Britney shaved it all off. Bet you couldn’t wait to be reminded of that, along with the fact that 2007 was also the year you didn’t file your taxes.

There are some common causes why people omit to file in any given year. It was a hectic time in their lives, marked by shaky relationships, shifts in residence or job, and they simply forgot. Or perhaps they found themselves with too little income and felt they could ill afford to pay any taxes they feared they might have owed to the government.

In fact, an ironclad case can be made why you should do the right thing and file a late return for 2007. For one, you could be due a tax refund, one you will forfeit if you fail to file by April 18th of this year, the date on which the statute of limitation for a refund for 2007 expires. But even if you owe, it is crucial to get it done. We’ll unpack some of the reasons when we review some of the key facts involved with past year returns.

Just over a million tax payers omitted to file a return in 2007. The IRS figures that it is sitting on above a billion dollars in owed refunds for that year, with more than half estimated to clock in at $640 or more per individual. The state of California alone is looking at a total potential jackpot of $127,000,000. These are impressive numbers, all representing moneys owed to the people, that the IRS stands to pocket if said people don’t come forward to claim what is rightly theirs.

So, it is advantageous to file, if only because you may come into some ready cash. Another excellent reason is that financial institutions, banks and the like look at your past returns when evaluating whether you qualify for a loan. Many discover to their dismay that it is their failure to file in any given year that caused their application for a mortgage, car or business loan to be rejected. Regardless of your particular situation, if you still have neglected to file a 2007 tax return, it is to your benefit to file one now.

To start with, here’s what you must know about a possible refund. First, if your return qualifies for a refund there is no penalty for filing late. Second, if you do get a refund, remember that any amount gained will be held by the IRS if you omitted to file either of your 2008 or 2009 returns. Furthermore, it would also be applied to any amount if any still owed from these two years, and be used to offset any unpaid child support or student loans.

But what if, as feared, you end up owing money to the taxman for that year? Note this: whatever the amount owed, it is highly probable that it will be substantially less than the figure the IRS will come to if left to its own devices. To understand why we must look at how the government assesses your tax liability for the year which you did not file. In short, it takes an educated guess based on a variety of factors such as past income, sends you a notice and, in the absence of a response, produces a substitute for return (SFR) whereby a tax return is filed on your behalf.

The reason, irrespective of any penalties incurred, you’re likely to end up with a greater liability is that this substitute return may not include any deductions and exemptions you would surely have taken if you had filed your own return. Nor will the IRS acknowledge any expenses involved in earning a living that year, resulting in a higher taxable income than would have been the case if you had been involved. And remember that any penalties and interest would be based on the taxman’s greater estimated amount and be accordingly more onerous.

The IRS calculates the failure to file penalty based on the period extending from the original deadline to the date the return is eventually filed. The fine is 5% of the amount owed for each month the return is late up to a total maximum penalty of 25%. The failure to pay penalty is also based on the amount due and is 0.5% for each month that the tax is not fully paid. Similarly, interest is itself calculated on the amount in arrears. While rates change every three months, underpayment interest rates for 2007 stand at 8%, among the highest of the decade.

Clearly, unless you’re prepared to live the rest of your life in hiding, it behooves you to file. Tax evasion is a serious offense, likely to end you in jail. To file past year tax, you should seek copies of your W2s, 1098s, and 1099s for that year. If it all sounds too overwhelming, you should consider obtaining the services of a qualified tax preparer such as PriorTax.com. For a low fee of $35 per annum, you’ll work with someone who has a special understanding of the various issues and possible pitfalls involved in filing late taxes. Although late taxes cannot be filed electronically, your preparer will make sure to forward you a printable copy that you’ll then be able to forward to the IRS by regular mail.