Back taxes is a term used to describe money owed to the IRS that was not paid at the time it was due. While back taxes are frustrating, the good news is there are ways to set things straight after the fact and make things right with the IRS.
The important thing to do is make sure you include back taxes when you file. There are consequences if you do not.
Consequences of Not Filing Taxes
Most taxpayers are required to file a tax return each year. The point is to make sure you file even if you are afraid of how you will pay back the money you owe. The IRS actually has some resources and ways to assist with tax debt.
However, when you fail to file, the IRS is more likely to crack down on you. The IRS keeps track of taxpayers who are required to file, yet fail to do so. The agency has the ability to pursue those missing returns and bring down heavy penalties and fees.
Additionally, the IRS can submit a return on your own behalf without any credits or deductions. This means that you will owe them the most amount of money possible. They can also put a hold on any future tax refunds.
As a result, even if you owe taxes and can’t pay, you should always file tax returns for back taxes in order to remain in good standing with the IRS.
How to File Back Taxes for Your Tax Return
Whether you have one missing year or many returns to file in regards to back taxes, you should proceed to make things right with the IRS. An experienced tax professional can assist with this process as well. They’ll help you:
- Gather your tax documents for the missing year(s).
- Request missing documentation from the IRS.
- Download prior year IRS tax forms.
- Prepare your new back tax returns.
- Submit your back tax returns to the IRS.
Gather Tax Information
Once you figure out which years you need to file for back taxes, you need as much information related to that tax year as possible. First, request your wage and income transcripts from the IRS.
The transcripts will help you identify the Forms W-2 and 1099s that you need to prepare for the return. If you are self-employed, you will need to gather further documentation. The same is true of investment income or other forms of income that is not on file with the IRS.
If you need more time to gather this information, you can request an extension from the IRS to file a late return. However, there are no promises they will abide and stop sending tax liens or levies for past due amounts.
The IRS generally requires that you file returns for the current year as well as the previous six years (if any years are missing). However, you can get more clarification on this rule by speaking to a tax pro since each situation is unique.
File a Return for Back Taxes
The process of filing back taxes is the same as if you were filing for the current year. You will include all the income you earned from the missing year(s). You will want to make sure the return is accurate and double-check everything.
If you can’t pay back the full amount of back taxes at once, you can consider options like entering a payment agreement with the IRS or requesting an Offer in Compromise.
You also have the ability to attach a penalty relief request to the return. It is applicable in certain situations and may wipe clean some penalties for failing to file in the past.
Once you submit the return for back taxes, make sure it is sent to the right IRS location based on your circumstances. It is also important to get proof that you submitted the old return.
Monitor Tax Return Processing & Compliance
It is important that you remain compliant with the IRS while you work to resolve back taxes.
As a result, you can periodically request your account transcripts from the IRS to make sure the return with back taxes was processed. Just remember that processing can take some time.
If the IRS previously took other actions against you, such as liens, levies, etc., you will want to make sure the agency has closed the case with no outstanding issues.
Make Back Taxes a Thing of the Past
You don’t want to get on the bad side of the IRS. Failure to file tax returns from previous years is a major no-no. It is better to file for back taxes and figure out how you will cover the debt than to simply ignore the IRS.
The agency can place tax levies and liens on your assets. There are also stiff penalties and fines for failing to file. Get on the right path today by contacting Levy & Associates at 800-TAX-LEVY, or visit www.levytaxhelp.com.