By the end of today you should have filed your tax returns, or least gotten an extension.
The question is how long do you need to sweat. At least three years. That is for small stuff, like entertainment-expense deductions that don’t pass the smell test.
A much bigger worry is failing to report income – especially if its at least 25 percent of your total income -or the IRS can prove you knowingly didn’t report it. You then can double your sweating to at least six years.
“This applies only to unreported income, Mark Matthews, a former top IRS official now with Caplin & Drysdale in Washington, told the Wall Street Journal in its article on When Can Tax Cheats Relax? by Laura Saunders.
If there are any documents that are also filed with the IRS – like 1099 statements from banks or from people you did contract work – the IRS will pick that up in a few months. That is called low-hanging fruit since it is easy for computers to check.
Another easy way for the IRS to get you is if someone reported giving you money or paying you interest. Let’s say you are a carpenter and you thought you were working under the table. If the person who hired you decides to claim your payments as a deduction the IRS can check to see if you declared it as income.
How about failing to file a tax return? For that my friends there is no statute of limitations.
“The most important is that the statute of limitations doesn’t begin to run until a return is filed. So an unfiled return from, say, 1990 is still fair game,” says the WSJ.
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