Why you should file your tax returns (even if you can’t pay the tax)

Nobody receives their w-2s and 1099s and thinks “someday, years from now, I’m going to file bankruptcy and discharge the tax I will owe on this return.”  But failing to file a tax return could prevent you from being able to wipe out income taxes if you do eventually end up in bankruptcy.

It’s true, it is not an easy thing to discharge income taxes in bankruptcy.  There are many factors which influence whether a tax can be extinguished.  For example, it has to be a tax that was due at least three years ago (technically speaking, a tax for a year for which the return was due at last three years prior to the date the bankruptcy petition is filed).

And the return has to have been filed at least two year before the bankruptcy case is filed.  The return could even be filed late as long those two years have passed.  And there’s your first reason to file the tax return as soon as possible — to get that two-year clock running.  Yep, you may never need to file bankruptcy, but you’ll be so glad those returns were filed at least two years ago if you ever do.  But that’s not the most important reason to file your tax returns on time. [Read more…]