Q: Should you still file your tax returns even if you don’t have the money to pay the taxes?
By Stephen Behrends, Apr 14 2017 03:51AM
A: Yes, definitely! There are several reasons why. First, while you will still have penalties for failing to pay on time, you won’t have penalties for failing to file. This will reduce the amount that you owe. Second, filing the tax returns will start the statute of limitations running. This sets the amount of time that has to go by before income taxes can be discharged in bankruptcy. It also starts the clock on the total amount of time for an audit and for collection of the taxes. Finally, it avoids the danger that the IRS or the ODR will file a “substitute for return” which includes your income but no deductions or exemptions in determining how much you owe. If this happens, not only do you owe more than you would if you did the returns yourself, but those taxes can never be discharged in bankruptcy, no matter how much time passes. So, always file your tax returns on time, even if you don’t have the money to pay the taxes you owe on them.