Do you have to file?
Before you dive in and start to prepare your income taxes, you should see if you even have to file a return. Each year over a million people needlessly file returns. You shouldn't be one of them.
Your age and how much you earned last year are the primary criteria used to determine if you should file a return. It's a little more complicated than this, but if you're single and under age 65, you probably won't have to file unless you've made more than $6,000 last year.
If you're married and are both over 65, you probably won't have to file a return unless you made more than $13,000 last year.
Things are stricter for children under 14, however. Children under 14 have a different "kiddie tax system". If your children are under 14, had interest or dividend income of even $1, and had total income of as little as $650, they'll have to file a return.
As a rule, there are probably many seniors who file even though they don't have to, and many children who should be filing, but don't. But if you're a middle-aged working stiff, you'll almost certainly have to file.
Failure to file is a big problem
And if you're required to file a return and don't, the IRS wants to have a talk with you. A lot of people worry about minor things like "Can I deduct aspirin as a medical expense?", but much of this is chump change to the IRS.
Failure to file, however, is a very serious problem. You can sometimes be aggressive in interpreting gray areas in the tax code, but this isn't one of them. If you don't file a return when you're supposed to, you're asking for big trouble down the road.
Extensions and late filing
But what should you do if it's April 14 and you haven't even started to get your tax act together. Or worse, you know you'll owe the IRS more money than you have right now? Should you not file and hope you'll get away with it?
The answer is no. If it's late and you haven't yet started to prepare your return, file Form 4868 and get an automatic, no-questions-asked four month extension.
This form gives you additional time to file your return, but not additional time to pay the tax. If you're confident you won't owe any additional tax, you should file for an extension. This of course will delay your refund, but at least you won't get into trouble for not filing or filing late.
If, however, it's April 14, you haven't started on your taxes and you think you'll owe money, you still should file for an extension and make an estimated payment if possible. You'll owe penalties and interest for unpaid taxes, but you won't owe penalties for filing late. The IRS has it set up so that the penalties for filing late are more severe than filing with an extension but having a tax liability.