It is a horrible feeling to know that there is something lurking that can catch up with you. For about 7 million Americans, that something is filing taxes.
That’s how many Americans don’t file taxes each year. If you’re one of them, you might think the IRS can’t possibly find out you didn’t file taxes. Yet, it can catch up with you.
You’ll want to understand why failure to file taxes is a serious issue and how you can clean it up as soon as possible.
Read on to learn what you should do when you have unfiled taxes.
IRS Tax Requirements
There are many reasons people don’t file taxes. They don’t have the money to pay taxes, they’re too busy with work and other things. Other people don’t think or know that they need to file taxes.
The IRS requires you to file taxes if you earned more than the standard deduction. This will vary depending on your filing status.
For self-employed people, you need to file if you earned over $400.
Even if you’re a US citizen living abroad, you still have to file tax returns with the IRS. Believe it or not, all US citizens have to pay taxes on income earned worldwide. So, if you’re a retiree in Italy or a wandering freelancer, you need to file taxes.
Few people realize this and it’s a big reason they have unfiled taxes. If you’re still not sure, take this online interview on the IRS website.
What Happens if You Have Unfiled Taxes
Let’s say that you don’t think you need to pay taxes or you just didn’t file. Will the IRS find out?
Yes, eventually, they will figure it out.
Let’s say that you earned income as a self-employed individual. The company that paid you filed a 1099-MISC on their taxes. The computer systems at the IRS will try to reconcile that 1099-MISC with your tax returns.
That’s how the IRS will figure out you haven’t filed taxes. This process could take months or even years. The IRS will then calculate your income based on that and other 1099-MISC forms that were filed. They’ll estimate your income for you and file a Substitute for Return.
They will calculate your estimated taxes owed, along with penalties and interest. This can be an outrageous number.
The IRS can then begin its collection activities, starting with letters in the mail. These will notify you that you haven’t paid your taxes and the amount you owe.
How to Resolve Unfiled Taxes
The longer you’ve gone without filing your taxes, the more likely the IRS will catch up with you. That’s why it’s critical to handle the issue as soon as you can.
The longer it goes on, the worse it will get. Here are the steps you can take to resolve those unfiled taxes.
The Letter from the IRS
If the IRS finds that you haven’t filed taxes, they will send a letter to you. You have 30 days from the date on the letter to explain to the IRS why you couldn’t file, send in a return, or agree with their assessment.
Get Immediate Assistance
Dealing with taxes can be a messy situation, especially when dealing with unfiled taxes. You’ll want to reach out to a tax professional who can prepare those tax returns. They can also get you on the right side of the IRS.
You’ll want to make sure that you work with someone who has experience working with the IRS to take care of past tax debts.
How Many Years of Unfiled Taxes?
The first thing you want to do is figure out how many years you’ve gone without filing taxes. The IRS will require you to file for the past six years if you have not done so.
Get Your Tax Information Together
You’ll need to get your taxes filed for those years where you didn’t file a return. You’ll need to go through your paperwork and figure out your taxes for those unfiled years.
You can ask the IRS to send the W-2 and 1099 forms that they have on file for you. You are responsible for reporting income that does not appear on those forms as well.
If you need more time than the 30 days provided to pay your tax bill or file a return, you can call and see if the IRS would agree to an extension.
Get a Receipt
You’ll want to check up on your return. You can request a transcript that shows that you filed your taxes and they received your returns.
There may be light at the end of the tax tunnel. You may qualify for an amnesty program that the IRS offers people who have unfiled taxes.
Paying Back Taxes
If you haven’t filed taxes in a few years, you’re likely to owe the IRS. There are programs such as an offer in compromise or installment plan that can help you pay those back taxes.
If you were fortunate enough to get a refund, you only have three years to claim it. In other words, if you have a tax return from four years ago that shows you’d get a return, you won’t be able to collect.
Clean Up Unfiled taxes
There are many reasons why people don’t file a tax return. By not filing taxes, you could be putting yourself on the radar of the IRS in a bad way. You can be sure that if you have unfiled taxes, they will know about it.
You want to clean up the situation as soon as possible. That starts with filing taxes for past years and working with a professional who specializes in helping people navigate the complexities of the IRS.
If you have unfiled taxes, don’t let them keep you up at night. Give us a call today and find out how we can get your tax issues resolved.
