Delinquent Tax Return Help: What to Do If You Have Unfiled Tax Returns
Many people get behind on filing their tax returns. Sometimes, it’s a simple oversight; other times, you may not even know how to file your taxes. Or perhaps you were fearful that you owed on your taxes and you didn’t have the money to pay.
Whatever the reason you fell behind, you may now feel like there’s no way to correct the situation you’re in. Fortunately, there’s almost always a way to resolve your tax problems — if you have the right help.
If you need help filing back taxes, get in touch with The W Tax Group to discuss your tax situation today. We can talk about the next steps and help you identify the best resolution option for your situation.
Why Do People Have Unfiled Tax Returns?
If you have unfiled tax returns, you are not alone. People fail to file their taxes for countless reasons. Here are a few of the most common reasons people fall behind on filing their tax returns:
- You were sure you’d owe money on your taxes but didn’t think you could afford to pay, so you didn’t file.
- You were dealing with a family emergency, a natural disaster, or a pandemic, and you just didn’t have time to file.
- You couldn’t find all of the information you needed to file, and before you knew it, you were behind on filing.
- You’re worried that after all these years of not filing, you’ll be completely overwhelmed by tax liability.
Regardless of why you didn’t file your tax returns, we can help you file your returns. We can also help you deal with any taxes due and get back into good standing with the IRS and state tax agencies.
Reasons to File Unfiled Tax Returns
Dealing with unfiled tax returns can be scary. You may not know what to do or what to expect. However, there are several reasons you should file your returns including the following:
- Claiming a refund — If you are due a refund, you have up to three years from the due date to file your return and claim your refund.
- Protecting retirement benefits — If you’re self-employed, the Social Security Administration doesn’t know how much you earn unless you file a return. If you’re self-employed, not filing can reduce your benefits during retirement.
- Obtaining loans — Most lenders will want to see a copy of your tax returns if you apply for a business or personal loan. If you have unfiled returns, you may struggle to obtain loans.
- Avoiding a substitute return — If you don’t file, the IRS may file a substitute for return (SFR) on your behalf. These returns typically don’t include all of your credits and deductions, and as a result, they lead to a higher than necessary tax bill.
Once the IRS files a substitute return, you have a very limited amount of time to respond. If you ignore the issue, the assessment can become permanent, and the IRS may pursue collection actions against you such as tax liens, wage garnishments, and asset seizures. Ideally, you should reach out to the IRS as soon as possible about your unfiled returns.
Consequences of Unfiled Tax Returns
If you don’t file your tax returns, the IRS can assess a failure-to-file penalty. This is 5% of the tax owed, and it’s assessed the very first day you are late. Then, it is assessed every month after that until you file. The maximum penalty, however, is 25% of your tax due. You will also face interest and failure-to-pay penalties on top of this amount.
Again, the IRS may issue a substitute return if you don’t file. Once the IRS has assessed a tax liability against you, the agency may try to collect the bill. Possible collection actions can include federal tax liens, asset seizure, bank account seizure, and wage garnishment.
How to Deal With Unfiled Tax Returns
To deal with unfiled returns, you simply need to file them, but this is easier said than done. If you have multiple years of unfiled returns, the IRS generally expects you to file the last six years, but the exact number can vary depending on your situation.
Here’s what you need to do if you have unfiled tax returns:
- Get the tax forms from the years you haven’t filed — the IRS changes the tax forms on a regular basis so you can’t use the current year’s forms to file your old returns. You should be able to get old forms from the IRS’s website. Or call the IRS and ask to have the forms mailed to you.
- Gather your income information — If you don’t have your W2s or 1099-forms from the years you didn’t file, you can ask your employer for the information. Or you can request these forms by filing Form 4506-T (Request for Transcript of Tax Return) and ticking box eight.
- Look at your business records — If you are self-employed or a small business owner, you will need to look at your business records to figure out your revenue, expenses, and profit for the years you haven’t filed.
- Find info related to deductions and credits — If you’re claiming children or other dependents on your return, you will need their information. Depending on the credits you plan to claim, you will also need information related to childcare expenses, state and local taxes, medical expenses, student loan payments, educational expenses, charitable contributions, and retirement account contributions.
- Prepare to request penalty abatement — The penalties associated with unfiled returns can be a lot, but you can request to have the penalties waived. If you just have a single unfiled return, the IRS waives penalties for “first-time offenders” relatively easily, but the process can be more complicated if you’re dealing with years’ worth of unfiled returns. The IRS will never remove penalties unless you request abatement — this is never an automatic process.
- Make a plan to take care of your tax liability — Depending on your situation and how much you owe, you may be able to pay off your back taxes in full, make monthly payments, request to settle the taxes for less than you owe, or get hardship status to stop collection actions against you.
Filing unfiled returns can be complicated. To make the process easier and to ensure you get the best resolution possible, you should work with a professional. The tax pros at The W Tax Group can help you file unfiled returns. We can also help you deal with penalties and make arrangements on your tax debt.