For one reason or another, many people don’t file their taxes. In 2014, over 7 million people failed to file their tax returns. You can bet that number is no different, today.
The US government says it loses about $28 billion in annual revenue from unfiled tax returns. So, when you owe back taxes from filing them late, they’re not inclined to go easy on you.
You may have to pay fines and fees on top of the taxes you owe. And, you’ll be paying interest on those late taxes, too.
It’s never too late to set the tax record straight!
We’ve developed a guide to help you figure out your next move. So, get ready to take control of unfiled taxes. Learn what to do, now that you’re ready to file.
Unfiled Tax Returns: The Ultimate Guide to Figuring it Out
First, don’t panic. You may have unfiled tax returns, but it’s not too late to get them done. Though, you do need to deal with it sooner than later.
Why? Because not filing your taxes is a punishable crime in the US. Besides hefty fines, you might even serve jail time for unpaid taxes.
But, that’s only if you don’t take care of it. So, let’s get it resolved, right now.
What Should I Do First?
Gather your documents. It’s important that you figure out what your income was for each year you didn’t file. Then, find any documents that can reduce your taxable income.
The IRS is only allowed to bring criminal charges against you for the previous 6 years of unfiled taxes. But, that doesn’t mean they can’t collect on taxes for earlier years. Look for everything you have from all tax years you’ve missed.
Then, prepare to call a good tax attorney. You’re going to need help.
These are documents that show what you earned each year. People who work for a company receive a W2. Independent contractors may receive a 1099 form, instead.
But, there may be other sources of income to report. Winnings from gambling and business income are two examples. You’ll need to find documents for all sources of income to file your taxes.
Deductions & Credits
Deductions are amounts you paid that you can use to reduce your taxable income. You’ll receive 1098 forms from companies where you paid interest. Like your mortgage company, banks, and investments.
You may be eligible for other deductions, too. Check out the IRS list of itemized deductions to find out!
Credits are money the government grants to you when filing your taxes. Examples include the child tax credit or earned income credit. They can increase your refund amount or reduce your owed taxes.
Credits can change when the tax code changes. You can only claim the allowable credits for the year the tax return is due. Not, the current year that you are filing in.
Own a Business?
You’ll need to gather those documents, too. You’ll still file a Schedule C for every year you operated your business. Gather income documents and all receipts for your business expenses.
Did the IRS File for Me?
You may not know this. If you don’t do it, the IRS can file your taxes for you. It’s called a Substitution for Return, and it’s not a good thing.
When the IRS files SRF, they do not grant you any credits or deductions you’re allowed to claim. That means the tax gets calculated much higher than it should be. And, they expect you to pay it!
How Many Years Back Should I File?
Count back from the last tax year due. How many years of unfiled taxes do you have? Write those years down.
You may not need to file them all. The IRS starts with the last 6 years. So, you can start there, too.
Remember, every situation is different. If you have unfiled taxes, it’s best to ask a tax attorney for advice.
I’m Due a Refund – Now What?
If you’re owed a refund, you’re in luck! But, don’t get too excited, yet.
The IRS will only pay out for the previous 3 years of tax returns. That means you’ve forfeited anything from tax returns before that. This is a good reason to file your taxes on time, each year.
I Owe – What Should I Do?
This is the typical outcome when filing past due tax returns. And, it can be an overwhelming amount, even if it’s only a single year.
If you’ve neglected to file for several years, you may owe thousands in back taxes. Many people find it’s more than they can manage to pay back.
How to Pay
You have options for paying your back taxes. Request an installment agreement or an offer in compromise.
Installment agreements are like a payment plan. You’ll set up a schedule and an amount with the IRS. Then, you’ll pay that amount each month.
Installment agreements that get paid out over more than 120 days have a one time set up fee. But, there is a waiver for low-income applicants.
An offer in compromise is for people who cannot pay their taxes and are experiencing a hardship. If you qualify, you can settle your tax debt for less than you owe.
Interest on Back Taxes
When you owe back taxes, interest gets calculated based on the date the original return was due. The IRS will apply it and tack it on. They’ll continue to add interest on unpaid taxes each month.
Get Professional Help, Today!
Unfiled tax returns are very complicated. You may need help filing them with the IRS. Besides, it can feel like a huge burden when you try to figure it out on your own.
Don’t go it alone! Find a tax attorney and get the help you need. Then, take care of those unfiled tax returns and relax!
Looking for tax help? We’re available 24 hours a day, and your initial consultation is free! Give us a call, today.