- If you owe the IRS money and you don't file a return, the IRS will use the records it has for you to file one instead. That may not include all the deductions you're entitled to, so you'll be hit with a higher tax bill; the IRS will then add interest and penalties up to a maximum 25 percent of the original tax debt. The sooner you file a report and send a check, the sooner you can stop the interest from accumulating.
- If you're entitled to get money back from the government, you won't get it until after you file your 1040. That includes not just tax refunds but refundable tax credits such as the Earned Income Tax Credit. If you have nonrefundable tax credits or deductions that have to be rolled over from one year to the next, filing a tax return establishes that you're carrying them over to the following year.
- The law limits how far back the IRS can audit your tax returns: Unless the agency suspects fraud or that you've underpaid by more than 25 percent, three years is the normal maximum. The clock only starts kicking after you've filed a return, so an audit is always a possibility for the years you didn't file. Three years is also how long you have to file a return and claim any money the government owes you; after that, the money is out of your reach.
- Despite all the reasons to file, there are some people who don't need to submit a tax return for a given year. If your income for the year was nontaxable -- from Roth IRA withdrawals or, in most cases, Social Security benefits -- you don't need to submit a return. If your taxable income was below the IRS minimum for your age and filing status, you don't need to file; for 2010, for example, most single filers younger than 65 won't have to report income of less than $9,350.
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