The Who, When & Where for Income Tax Returns
How to save money on taxes? The Internet is chock full of articles on this topic. For many taxpayers, knowing the “who, when and where” rules can save more than even the most creative tax planning strategy.
The U.S. Self-Reporting Tax SystemSome countries have tax systems where the government computes the tax and tells the taxpayer how much tax is due. These tax systems put the burden and responsibility on the government to do the work. The U.S. is not one of these countries.
The U.S. system puts the burden and responsibility squarely on the taxpayer to do all of the work. The U.S. income tax system is based on taxpayers computing their own individual tax liabilities and voluntarily reporting the tax due to the IRS.
Given this voluntary tax filing system, the U.S. system also has to have a number of rules to encourage voluntary compliance. This includes civil and criminal penalties targeted at taxpayers who do not file, who do not file timely, and who do not file accurate income tax returns.
The IRS assesses these civil penalties in just about every case when a tax return is not filed, is not filed timely, or is filed but is inaccurate. The dollar amount for penalties can be quite high. In some cases, the penalties may be almost as substantial as the underlying tax.
Who Has to File Income Tax Returns?The U.S. system does not require all taxpayers to file income tax returns. The rules vary from one type of taxpayer to another.
Corporations have to file income tax returns every year. Even a dormant entity has to file. This is true even if the corporation did not receive any income or had a loss.
Individuals have to file if income tax returns if they receive $1,750 or more of income in a calendar year. This includes U.S. citizens, regardless of what country they reside in, and individuals residing in the U.S. The $1,750 increases to $2,500 if the individual is married and can file a joint tax return and $3,250 if either spouse is 65 years or older. Generally, a husband and wife married on the last day of the year can file a joint tax return.
Trusts, estates, and fiduciaries have to file tax returns if they receive more than $600 during the year.
When do Income Tax Returns Have to be Filed?Income tax returns generally have to be filed by April 15th of the year following the reporting year. This general rule applies to calendar year individual, employee benefit plan, estate and partnership taxpayers. It only applies if an extension is not received.
Absent an extension, corporations generally have to file their income tax returns by the 15th day of the year following the reporting year.
There are taxpayers who do not report their income taxes on a calendar tax year. There are also short year tax returns--which usually comes about for a business that opens or closes during the year or an individual who dies during the year.
The topic of late filed returns has been heavily litigated. Taxpayers almost always lose these court cases. This has produced a body of law that is overwhelmingly in the IRS*s favor. This has produced a downward spiral where IRS personnel rely on this body of law to impose and not abate penalties which continues to result in more litigation and more unfavorable court cases.
Where are Income Tax Returns FIled?Tax returns generally have to be filed with the IRS service center that serves the area in which the taxpayer resides or where its business is located. The instructions for the tax return form set out the proper addresses. The IRS also maintains an updated list on its website.
While income tax returns that are mailed have to be delivered to specific addresses, income tax returns that are hand delivered do not. The IRS service centers will generally accept hand delivered tax returns. It will even do this for taxpayers whose returns are not administered by that particular IRS service center.
Income tax returns do not necessarily have to be filed in physical form. They may also be filed electronically. E-Filing is optional for most taxpayers. But there are exceptions.
For example, E-Filing is mandatory for tax return preparers who prepare a substantial number of tax returns each year. E-Filing is also mandatory for some large corporations.
The consequence of not filing an income tax return at the proper location can be that (1) the IRS loses and fails to process the income tax return or (2) the IRS forwards the income tax return to the proper IRS facility but it is then noted as a late-filed return. This can result in significant penalties.
ConclusionThe *who, when and where* for filing income tax returns is not as sexy as tax strategies to save money on taxes. While saving money on taxes may be interesting, the who, when and where rules for income taxes can produce savings in excess of many tax savings strategies.