Hello, everyone! Last night, we rediscovered one of California’s iconic experiences—the drive-in theater in San Diego.
With the beautiful night sky above us and nestled in the comfort of our car, it was the perfect way to enjoy a movie with our little one, Kainalu, without the fuss of a traditional cinema.
Speaking of doing things differently, it got me thinking about a less enjoyable aspect of life where going with the ‘default’ might not be in your best interest—dealing with the IRS, especially when it comes to their version of your tax returns.
When the IRS Does Your Homework
Imagine this: You’ve skipped filing your taxes for a few years. Maybe life got busy, or perhaps the paperwork seemed overwhelming. Whatever the reason, if you don’t file, the IRS can file a tax return on your behalf.
This is known as a Substitute for Return (SFR). Sounds helpful, right? Well, not so fast. Let’s dive into why accepting the IRS’s numbers might not be the best move.
**1. One-Size-Fits-All Approach: Just like a drive-in movie isn’t the perfect fit for every moviegoer, an SFR isn’t tailored to your unique financial situation. The IRS fills out these returns based only on the information it has, which usually means without any deductions, credits, or exemptions you might be entitled to. This can lead to a significantly higher tax bill.
**2. Missing Out on Deductions and Credits: When the IRS creates an SFR, they don’t know about your charitable donations, your deductible mortgage interest, or that you have three kids who could qualify you for substantial tax credits. Every detail omitted can mean more dollars out of your pocket.
**3. Tax Liabilities and Penalties: Not only does an SFR often result in higher tax due, but it also starts the clock on penalties and interest. These can accrue at an alarming rate, turning what might have been a manageable bill into a financial nightmare.
**4. Less Control Over Your Financial Life: Relying on the government to report your earnings and calculate your taxes means giving up control of your financial narrative. It’s like letting someone else pick the movie you’re going to watch at the drive-in—you might end up watching a horror flick when you really wanted a comedy.
Taking Back the Reins
So, what can you do if you find yourself facing an SFR? First, don’t panic. Second, it’s time to take action:
- File Your Past Returns: Even if the IRS has already filed an SFR, you can still file your own return to replace it, and this is almost always in your best interest.
- Claim What’s Yours: Make sure to include all your deductions and credits. It might not just reduce your tax liability; it could lead to a refund.
- Seek Professional Help: Navigating back taxes and replacing an SFR can be complex. Working with a tax professional like an Enrolled Agent can help ensure you’re making the right moves.
Conclusion
Just like choosing a drive-in over a traditional movie theater gave us control over our family movie night, taking charge of your tax situation gives you control over your financial future. Remember, when it comes to the IRS, the default option is rarely the best choice. If you haven’t filed your taxes in a while, it’s time to switch from the backseat to the driver’s seat.
If you need help or guidance with filing past returns or dealing with an SFR, visit my website for more information or to contact me directly. Let’s get your tax situation back on track under the stars of clarity and confidence, not under the cloud of IRS defaults.
Andrew Samaniego, EA, CTRC, MSCTA
Andrew Samaniego Tax Planning & Resolution
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