For many Americans, few things are more intimidating or confusing than filing their taxes. Yet essentially every American is required to file an annual income tax return. Sooner or later, all of us will have to deal with the Internal Revenue Service (IRS) in some fashion.
Taxpayers typically either owe the IRS additional taxes or are eligible for a refund, or "tax return," depending on the amount of money withheld and many other variables. These variables depend on federal and state tax laws, and therein lies the cause of most of the confusion.
When a taxpayer fails to file a tax return or commits an error, they can potentially face fines and even criminal prosecution.
Filing Your Taxes
Most of us are required to pay taxes on personal income each year. Income, for tax purposes, typically includes wages, earnings, tips, commissions, dividends, alimony, etc. But not all income is taxed at the same rate. The IRS taxes each level of income at a progressively higher rate.
Taxpayers can apply deductions and credits to help them pay less in taxes. Deductions are expenses that may be subtracted from your taxable income. Some typical deductions include student loan interest, property taxes and mortgage interest. Tax credits can also reduce taxable income for some people, like first-time homebuyers and those caring for dependents.
Both individuals and businesses must file tax returns on time. If they fail to do so, they may face criminal and civil penalties. Taxpayers who have overdue taxes should immediately take steps to remedy the problem, as ignoring the issue could lead to tax evasion charges.
In many cases, it is possible for the taxpayer to negotiate an installment agreement. In some cases, the taxpayer may also be able to negotiate a settlement with the IRS to pay less than the total amount owed. Experienced tax law attorneys often have the most success in these negotiations.
IRS Tax Audits
The IRS tends to publicize its audits and tax prosecutions of celebrities (Wesley Snipes, anyone?). But the chances of a person who earns $25,000-$100,000 per year being audited are actually less than 1%, according to recent IRS stats.
It didn't use to be this way -- IRS audits used to be much more common. An astounding 5.6% of all Americans had their tax returns audited in 1963, for instance. Everybody knew someone who had been audited. Why the shift? In the 1990s, there was a decline in IRS workers and laws to prevent abuses by IRS agents and auditors.
All of this is not to say you can get away with cheating on your taxes. The IRS employs sophisticated computer algorithms to flag tax returns for auditing. If your return looks strange or gets flagged, your chances of being audited shoot way up.
The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.
Additional Tax Articles
- Child Tax Credits and Deductions
- Failure to File Taxes
- What Happens if I Default on an Installment Agreement?
- What happens if I cannot file my income tax return on time?
- Failure to File Taxes
- Tax Law Basics
- Wage Garnishment for Unpaid Taxes
- What Is Federal Income Taxation?
- Can the IRS Levy or Seize Property Without Notice?
- Can I request a tax extension?
- Do I Have To Pay My Taxes?