If you haven’t filed taxes in a long time, you may feel stressed, worried, and upset about the situation. People don’t file taxes for all kinds of reasons. They may have had a death in the family, suffered an illness, or just been overwhelmed with life in general. A lot of people avoid filing taxes because the process is unpleasant and confusing for them.
Regardless of why you haven’t been filing your taxes, you should get back into compliance before the IRS brings collection actions against you. The tax attorneys at The W Tax Group can help you deal with unfiled returns. To learn what happens if you don’t file taxes and to get help now — contact us today.
What Happens If I Don’t File Taxes?
When people haven’t filed a tax return in several years, one of the first questions they ask is, “What happens if I don’t file taxes?” The answer depends on your situation. Here are some of the things that can happen if you don’t file taxes:
- You can incur failure-to-file penalties.
- Interest will be assessed on your balance.
- You may face liens, levies, garnishments, or other collection actions.
- You may struggle to get loans because many lenders want to see your tax return.
- The IRS may seize your passport.
- The IRS may assess civil or criminal tax evasion penalties against you.
- You will lose your right to claim refunds for prior years
If you owe tax, the IRS will impose a failure-to-file penalty for 5% of the tax owed per month that you are late. This penalty applies the first day you are late, and it can get up to 25% of the balance. For instance, if you owe $10,000, the failure-to-file penalty can be up to $2,500. Interest and other penalties may be assessed on top of this amount.
The IRS may also generate a substitute for return (SFR) for you. SFRs generally report all of your income but leave out valuable credits and deductions. As a result, they lead to unnecessarily high tax liabilities. Once the IRS generates an SFR, they will demand payment and start collection actions against you.
This can include tax liens, asset seizures, wage garnishment, and more. To put it simply, when you don’t file a return or pay your taxes, the IRS has the ability to collect the funds involuntarily.
Not Filing Taxes When You’re Entitled to a Tax Refund
If you’re not required to file a tax return, the IRS won’t take collections action against you, but you may miss out on credits or refunds. Some credits such as the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) are available to taxpayers whose incomes are under the filing threshold.
Keep in mind that you only have three years to claim a refund. There is no penalty for filing late if you are due a refund, and the IRS will even add interest to your late refund. But if you don’t file within three years of the due date, you lose your chance to claim the refund.
In contrast, if you owe the IRS money, the agency has a decade to collect it. And there is no time limit for the IRS to assess a tax against an unfiled return.
How Long Can I Go Without Filing Taxes?
People with unfiled returns also want to know how long they can go without filing taxes. If the IRS hasn’t notified you for several years, you may think that you can continue to fly under the radar.
But this isn’t the case — once the IRS realizes that you haven’t been filing, the agency can assess tax and penalties against you and start collection actions.
Some people go years without filing a return, but once the IRS catches up with them, the penalties and interest can be extreme. Additionally, if the IRS believes that you have willfully committed tax evasion, the agency can bring criminal charges against you.
Not Filing Your Tax Return Due to Tax Evasion
In a worst-case scenario, not filing your return can lead to jail time. Note that this is relatively uncommon and only happens in cases of willful tax evasion. Willful tax evasion occurs when you purposefully don’t file your tax returns in an attempt to avoid paying tax.
Civil tax evasion penalties can be 75% of the tax owed. Criminal penalties can be even worse. If you believe that the IRS is considering criminal charges against you, contact a tax attorney for help as soon as possible.
How Far Back Can the IRS Go for Unfiled Taxes?
There is no statute of limitations on unfiled returns. If you haven’t filed a return, the IRS can go back to any time period and assess a tax against you.
However, once the tax has been assessed, the IRS only has 10 years to collect. The clock starts ticking when you file a return or the IRS assesses a tax against you.
What Should I Do If I Haven’t Filed Taxes in 10 Years?
If you haven’t filed taxes in 10 years, the IRS recommends that you file your tax returns as promptly as possible. To catch up on your returns, you can work through these steps.
1. Figure Out Which Years You Need to File.
Keep in mind that you don’t necessarily have to file every year. In most cases, you only need to file if your gross income is over the standard deduction for your filing status. For example, as of 2022, single filers don’t need to file if their income is under $12,550.
You also need to file if you have more than $400 in net self-employment income, or if you owe special taxes such as the alternative minimum tax, early IRA withdrawal penalties, household employment taxes, or taxes on tips.
To determine if you need to file, check out the IRS’s Do-I-Need-to-File tool. The process takes about 12 minutes. You need your filing status, details about your income, and the amount of federal income tax that was withheld from your paycheck.
2. Find the Tax Forms for the Unfiled Years.
Tax rules, deductions, and credits change every year. To ensure you’re providing the IRS with the correct information, you need to use the correct tax forms for every year. You can often find the tax forms you need by doing a web search for the tax form and the year.
For example, if you need to file an individual tax return for 2019, search for “form 1040 year 2019”. These forms should be available for free on the IRS’s website. Do not pay to download them from other sites. Alternatively, you can call the IRS at 1-800-TAX-FORM or contact a tax professional to help you.
3. Gather Your Income Information.
To file your returns, you will need information about your income including wages from employers, self-employment income, investment income, and retirement income. If you don’t have copies of these forms, you can contact the payer. For example, your old employer may be able to provide you with copies of old W2 forms.
You can also set up an online IRS account to request wage and income transcripts. The IRS should have copies of all the W2s and 1099-forms generated by businesses and other entities that have paid you. If you ran a business or sold capital assets during any of the unfiled years, you may also need to gather information about that.
4. Prepare and File Your Tax Forms.
Once you have the information and the tax forms, it’s time to start filling them out. You should be able to calculate your tax liability using the forms, but keep in mind that is the amount you would have owed if you had filed on time.
Since you’re filing late, you will also need to pay interest and penalties. The IRS will let you know about these amounts once you have filed.
5. Make Arrangements for Your Tax Liability.
After you have filed, you can try to request penalty abatement. The IRS often waives penalties for people who have reasonable cause for not filing. Then, you can either pay your tax liability in full or negotiate arrangements with the IRS.
If you cannot afford to pay your tax liability, you may want to set up a payment plan, apply for an offer in compromise, or make other arrangements with the IRS. A tax attorney can help you identify the best resolution options for your situation.
Get Help If You Haven’t Filed a Tax Return for 10 Years
If you haven’t filed a tax return for 10 years, you don’t have to deal with the process on your own. We can help you. The tax attorneys at The W Tax Group have extensive experience helping taxpayers with unfiled returns get back into compliance with the IRS.
It’s always better to contact the IRS before they contact you. To get help, contact us today. We’ll start with a conversation about your situation and help you find the best and easiest way forward.