Why You Should Always File Your Income Tax Return

individuals irs tax tips

As a tax professional for many years, my advice is to always file your tax returns. I know that seems obvious. But sometimes life happens and we find ourselves falling behind with lots of important stuff especially filing your taxes.

In this blog post, I’ll share a story about a friend of mine, who didn’t file his taxes and almost lost out on a five thousand dollar refund. Because, if you’re due an IRS refund, you have three years in which to claim it. Once you’ve passed three years, your refund is lost. I’ll explain more in a bit.

Later, I’ll let you know the last day to file your 2019 tax return, in order to claim your refund. There’s still time.

So this was a few years ago. A friend of mine, let’s call him Mike, confided in me that he hadn’t filed his last three years of tax returns.

I said to him, why the heck not? He said something about being super busy, his mom passed away, and he thought he would owe the IRS, and he didn’t have the money to pay them.

I thought about it for a minute and said, Mike, you have four kids, they’re worth at least two thousand dollars each in child tax credits. You’re probably going to get a refund.

He replied, Oh shoot, I’m an idiot. I told him to get me his tax paperwork to me, so that I could work on it for him.

The earliest year, I believe it was 2016, that he hadn’t filed. He was still within the three year period to claim a refund, but time was of the essence. He didn’t have a lot of time. I want to say that it was under two weeks.

So the way it works is, you have three years to claim an IRS refund. If you pass the three years, then your refund is lost. But at the same time, if you owe the IRS, you still owe them. It doesn’t go away after three years. It’s kind of one sided right.

Well actually, if you owe the IRS, they have ten years to collect from you, then the tax debt expires. More on this in a bit.

If nothing else, this is probably the biggest reason to file your tax returns. You don’t want to lose out on potential tax refunds. This is your rightful money.

Back to my story with my friend Mike. So he gets me his tax documents for 2016 with just a few days left before the last day to claim a refund. Actually, he got me all the years he had missed, so that included 2017 and 2018 as well.

I rush to prepare his 2016 tax return, and like I anticipated, he and his wife were due a pretty big refund. I believe it was just over five thousand dollars. For some reason, I couldn’t efile his tax return, I can’t remember why. So I prepared a paper copy that he could sign and mail in. I tell him to mail it to the IRS by certified mail no later than the next day.

He follows my instructions, and a few months later he gets his refund check. He’s happy. I’m happy for him, and all is good.

This is why it’s important to file all of your tax returns.

As a side note, July 15, 2023 is the last day to file your original 2019 tax return to claim an IRS tax refund. So if you haven’t filed your 2019 tax return, get to it!

If you miss the deadline, any excess money that you paid to the IRS goes to the U.S. Treasury instead of to you. You also lose the opportunity to apply any refund dollars to another tax year in which you might owe income tax.

Even if can’t find your tax documents, talk to a talk pro. They can help you get the information you need from the IRS. You can also do it yourself by pulling your wage and income transcripts from the IRS.

Another reason to file your tax return is to get the statute of limitations running. Generally, the IRS has 10 years to collect a tax debt from you, which starts from the date of assessment.

After this 10 year period has expired, the IRS can no longer try and collect on an IRS balance due. However, there are several things to note about this 10-year rule.

The statute says, 10 years from the date of assessment. The assessment date is April 15 of the year that the taxes were due or the date the return was actually filed, whichever is later. But, if you never filed a tax return, then the statute doesn’t even begin. There are also things that can delay or toll the 10 year statute of limitations.

Thanks for reading, and see you in the next blog post!

About The Author

Noel Lorenzana is an Illinois-licensed, Registered Certified Public Accountant with over 20 plus years of experience.

Through his online educational content, YouTube videos, easy-to-understand courses and 1-on-1 consulting, he gives you the tools to become tax savvy for yourself. 

Disclaimer: Any accounting, business or tax advice contained in this article, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.