Every year over 15 million income generating households do not file a Federal tax return. In the majority of cases, these individuals do not have to file. Whether you have to file depends largely on your income, your filing status and your age. In most cases, income is the determining factor. If you were self-employed and make $400 or more in 2009 or in the relative past you will need to file a tax return. If you are a W-2 Employee (you work for someone else), the income threshold changes each year. Therefore, if you are wondering whether you needed to file, you should look at the minimum income filing requirement for your age and filing status for that given year which is typically explained in the yearly 1040 instructions provided by the IRS. In regards, to state taxes, you should visit your local state’s income tax revenue website in order to find filing requirements as each state will be different.
If you fail to file a Federal tax return (when you are required to) or you have unfiled tax returns you can face penalties, interest, and other actions by the IRS that can be quite stiff and financially debilitating. With regards to State tax consequences, each state is different but there are some commonalities with regards to collection actions. Tax liens, tax levies, and penalties are utilized by states as well. Read more on the consequences of failing to file a tax return and why it is in your best interests to do so.
If you realize you want to be proactive and avoid potential penalties and interest, there are a few guidelines you can follow in order to file any unfiled tax returns. If the IRS has completed a return for you (substitute tax return or SFR) and sent it to your last known address asking you to sign and return it, do not — instead file a tax return and send it to the IRS.
The standard IRS failure to file penalty is 5% a month and will max out at 25% of the total tax liability. Understand how this penalty is calculated. About 33% of all failure to file penalties can be eliminated with a “reasonable cause”, know if you qualify to have your penalties eliminated.