IRS Publication 17 sets out several instances when you are required to file an income tax return. In general, you must file if your income exceeds the value of your personal exemption plus your standard deduction. You're also required to file if you're a dependent and your income exceeds certain lower thresholds. Finally, the IRS may also be expecting a return from you if you're self-employed, took out money early from a qualified retirement plan like a 401(k) or IRA, or any of a number of other activities which cause you to owe special taxes.
Interest and Penalties
When you file late, you're going to owe interest and late filing penalties, which are based on how much you owe and how late you're filing your return. The IRS states that the late filing penalty is typically 5 percent of the unpaid taxes for each month or part of a month the return is late, with the penalty capped at 25 percent. The interest rate on the unpaid taxes equals the federal short-term rate plus 3 percent per year.
Statute of Limitations for IRS Audits
For minor tax errors, the IRS is generally limited to auditing your return within three years after you file it. For larger errors, such as issues that involve more than 25 percent of your gross income on the return, the IRS has six years to come after you. However, these statutes of limitation don't start to run until you have filed the return (the also don't apply if you file a fraudulent return). So, the sooner you file your return, the sooner you can sleep soundly knowing the IRS can't question what you reported.
If you're due a refund, there's no penalty or interest charged for filing a late return, according to the IRS. However, even though you might not be required to file a return, it still might be in your best interests to file a late return as soon as possible, because you have a limited amount of time to claim your refund. Usually, you must file within three years from the time the original return was due. For example, if your original return was due April 15, 2015, you have until April 15, 2018 to claim your refund.