Filing Back taxes – How to File Back Taxes and What to Know
The IRS will not prosecute individuals who voluntarily contact them to file their back taxes. However, if the IRS locates you first, before you can file, individuals can receive different punishments, the most extreme being one year in prison, as well as ten-thousand dollars for every unfiled year. Though there is not enough room in prisons to jail everyone who has unfiled back taxes, there are many other punishments individuals can be subjected to. Below is information on why you need to file your back taxes with the IRS despite the filing being late, and how you are able to file unpaid back taxes. With the right documentation, taxes from any year can be filed.
Why you need to file back taxes, no matter how late
If you choose not to file your taxes, penalties and interests will continue to accrue, thereby increases the overall amount in back taxes you currently owe the IRS.
The IRS will ultimately locate you through their computerized system. It might be slow, but do not doubt it, because it is efficient.
By not filing, the IRS will file a “Substitute for Return” for you. This is not a good idea as it will combine all unfiled tax returns in one year. They will also not apply any federal expenses or exemptions, thereby increases the complete amount you owe in tax liability.
Once the IRS files a Substitute for Return, they will be able to start collecting the back taxes. Often this results in tax levies on bank accounts and/or wages, or even a tax lien placed on any personal property you own.
Although the IRS may have filled out a Substitute for Return, it is still in your interest to file back taxes owed. Once you do this, the IRS will fix your balance. If you have an outstanding balance owed, you will not be able to get a mortgage or car loan because you will have unfiled tax returns. Other benefits, including social security, can also be taken away. The consequences of the IRS finding you before you have had the chance to file voluntarily or contact them about setting up a settlement, are highly detrimental. It is better to tell the IRS you do are not able to pay than to ignore the IRS. Once you speak to the IRS and either pay in full or start a settlement agreement, the IRS will document that you are in positive standing with them, and this is a very good thing.
How to file your back taxes
Gather important information. When needing to file old returns, find all documentations that correspond to it. This would include 1099 tax documentations and old W-2s. if you are unable to locate these documents, you are able to inquire with the business where you received them, for copies. If the business no longer has copies of these documents on file for you, then phone the IRS and ask for your income data for any missing years. It is very possible the IRS will be able to provide this information, because every business is required to report the information directly to the IRS. But what if the IRS is not able to locate that information? Then you simply fill out a form 4852. This is a substitute W-2 form that approximates the amount of the W-2 for the needed years.
Prepare all your tax forms. Every year has a corresponding tax form and you will have to acquire them to fill out. The IRS often requires that you file tax returns for the previous six years of missing tax return, as well as the current year. If they require that you file tax returns that are more than six years old, you are able to locate these forms on the official IRS website or a tax resolution firm. To reduce total tax liabilities, always include any credits, exemptions, and deductions. You can visit an IRS administrative center and request this information. It is beneficial to hire a tax expert to assist you. Tax code can be very complex, and especially if the sum of the taxes you will owe is more than you can pay, they can be helpful in assessing situations.
Get in touch with a dependable tax firm. Always used either a tax certified public accountant or a tax attorney to assist in filing back taxes and set up a resolution if need be. A reliable and professional firm will assist in filing back taxes and aid in locating the appropriate settlement method for you current financial situation. If you do decide to not use a tax firm for assistance, then the easiest way to settle back taxes is to mail an installment agreement request along with your tax return. An installment agreement enables you to pay all owed taxes in monthly installments instead of a lump sum payment. It is an easy agreement to get accepted. However, there are multiple forms of IRS tax settlement methods you can read about to see if you are eligible. For more information on that, please see the article located on the right of the screen.
File all your back taxes as well as other paperwork. If you are mailed a letter by the IRS requesting that you file your back taxes, then mail your tax returns to the address posted on the letter or send them to the address normally used for tax returns. Once returns are filed, it is advisable to seek the assistance of a tax professional to reduce or settle the total back taxes amount owed. In a majority of situations, you will be asked to accept a solution provided by the IRS for a tax payment plan.
Advice to ensure success when filing taxes
Never delay on filing your taxes. The more time you choose to wait, the more penalties and interest the IRS will add to the total tax debt amount owed. In many situations, penalties alone will increase your debt amount by twenty-five percent. Remember that you can never be too late when filing a tax return.
Get the assistance of a tax professional who has the capability to file your taxes and reduce any back taxes owed. They can assist you with saving money, even more than if you tried to file your taxes on your own. These are the experts and many of them have handled situations either like yours or worse than yours. Tax professionals can be extremely advantageous to have in your court if you know you are going to be unable to pay the full amount of taxes owed. Even though the IRS wants to make individuals believe that they have to pay the full cost of back taxes, there are settlement methods that can decrease the total amount owed, and a tax professional knows exactly where to look.
If you are looking for assistance from a professional, reliable tax team that will be able to aid you in filing tax forms and resolving and back tax issues with the IRS, or if you believe that you are in need of a complimentary consultation in an effort to gain an understanding on what is involved in the process of filing back taxes, you can request to get a free quote today.