There are several reasons why you may have unfiled tax returns. One of those things, even coupled with other reasons, might be that the task seems so overwhelming. Putting “File My Tax Returns” on your to-do list does nothing to get it done. Instead of eating this apple all at once, we suggest you start with checking off the following smaller tasks to get your closer to having your tax filings complete.
1) Contact a Tax Professional
No one says you have to tackle filing of returns on your own. Tax preparers often have software dating back many years that will help you file those old tax returns all at one time. A good preparer will walk you through the information you need to gather and make the process much more streamlined than you might think.
2) Gather Information
You will need your W-2s, 1099s, and all other information necessary to file your tax returns. If you have a business, you will also need receipts to support your deductions. If you sold any property, you will need to have documentation showing the details of that sale.
3) Request a Transcript
Of course, filing previous year unfiled tax returns require getting previous year information. But, that might be hard to come by when you have moved or simply aren’t a great record keeper. When you get W-2s from your employer or 1099s from other sources, a copy is also sent to the IRS so the information can be matched with what you put on your return. The IRS tracks this information according to your social security number, called a “Return Transcript.” The IRS also tracks your account for balances due and payments you’ve made. This is called a “Account Transcript.” You can request your transcript by calling the IRS, requesting online at irs.gov, or writing in your request.
4) Unpaid Tax
Sometimes people hesitate on filing their returns because they know they can’t pay the balance that’s due. This is a mistake. Unfortunately, if you don’t file, there’s a separate penalty for that, which includes interest that accumulates until the return is filed. Also, the statute of limitations for the IRS to audit your return never starts until you file. Click here to learn more about if your tax debt can be forgiven.
So, file your return as soon as you can get it done and make separate arrangements to pay at a later time. The IRS will allow you an additional 60 to 120 days to pay in full without charging you an additional set up fee. You can do this online or by phone. If the amount due is much bigger than you can pay in 120 days, you should still file and then set up an installment arrangement or an offer in compromise.
5) Substitute Return
The IRS sometimes will choose to file a return for you when you haven’t done so yourself. When it does this, it sends you what is called a “substitute return,” which shows just the very basic income information and only simple deductions. It will not show amounts that are for your particular situation such as taking into account that you’ve bought a house, that you have business deductions, or that you’ve had any change in circumstances from the last filed year. The result is that the tax may be overstated on the substitute return.
In this case, when the IRS sends you notice it has prepared a substitute return, you have 90 days to dispute the amount due by going to U.S. Tax Court. If you fail to do this, the IRS will formally assess the tax and take collection action against you. You may also contact the IRS at the number on the notice to explain and make arrangements for filing before the 90 days is up.
You may have an opportunity to dispute the amount due and file a corrected return even after the 90 days passes; however, you will need to make a request for reconsideration and have circumstances that justify having the IRS relook at your return and adjust your tax accordingly.
6) Where to File
You should file your return in the same way and at the same place as you do in any current year. However, if the IRS has filed a substitute return, you will need to send the return to the address on that notice. Also, if you are working with the IRS on a payment arrangement for other tax years, the IRS may direct you to file unfiled tax returns to another address, which they will give to you.
Accomplishing these few manageable things will go a long way to filing your overdue tax returns. Getting this out of your way will be a good first step to opening other opportunities for resolving your overall tax problems.