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Help With Back Taxes

How to File Your Tax Returns Even If They’re From 3 Years Ago

Back Taxes Help

It’s daunting to owe federal taxes. However, that shouldn’t be a reason not to file your tax returns.

Whether you have financial hardships or simply missed a year, it’s never too late to file your income tax returns. (However, three years is too late to get an income tax credit or refunds. More about that later.) You may owe back taxes if you didn’t file a tax return and have an unpaid balance for that year.

In fact, not paying your taxes on time is less serious than not filing a tax return if you do owe. The Internal Revenue Service (IRS) might not move swiftly to collect on unpaid taxes, but if you notice you do have federal taxes owed and still haven’t filed a return for that year, that’s a tax situation you want to resolve as soon as possible. Back-tax collection activities can have serious consequences. There’s a fine line between delinquent tax returns and unfiled tax returns. One thing is for certain, it’s not a tax situation you want to leave for another year.

Back taxes happen. Here’s how to find some relief.

How to Deal With Back Taxes and Unfiled Tax Returns with the IRS

File your taxes. Pick a payment plan. Follow your plan. It’s a simple, direct process for handling unpaid income taxes, but one that comes with plenty of flexibility and options for low-income taxpayers, including tax relief programs and installment plans.

In this article, we’ll share a few options and explain how to handle back taxes, which tax forms match your payment options, and some of the true advantages of filing back taxes.

1. File Your Tax Returns

Before worrying about how you will pay off your overdue taxes, it’s critical that you file your taxes.

Whatever your financial situation, the IRS wants to be upfront with them. The penalties for not filing your tax returns are often more severe than those from actual federal taxes owed. Whether or not you can actually pay your delinquent taxes now, your first step in resolving back taxes should be filing.

Filing back taxes follows the same steps as a normal tax year.

  1. Gather tax documents, such as W-2s and 1099s. You may want to contact your financial institutions to request forms if you don’t have them.
  2. Start filling out your 1040 forms or, if it’s been a while since you’ve done your taxes, contact a qualified tax professional to start the form. Pay close attention: If you can legitimately take advantage of tax deductions, do so and make sure your paperwork is thorough.
  3. Submit them to the Internal Revenue Service. You may consider using an electronic or e-file submission to curtail late payments and interest.

Once you’ve filed your income tax return, you can start thinking about how to pay down your taxes owed.

2. Pick a Payment Plan

The IRS offers various installment payment plans that can help taxpayers who may not be able to pay the full amount they owe on a delinquent tax return.

Issuing an immediate response to your back tax situation is important, despite what you can or can’t pay. Yes, a lump sum initial payment is a good idea to pay off as much of your tax balance as you can and then you can begin to explore IRS payment plan options, such as an installment agreement or an offer in compromise. If your monthly income is low enough or unstable, you can even request a delay in collection on your back taxes.

Let’s take a look at each of these back tax payment plans in more detail.

Installment Agreement

This is a monthly payment plan that allows you to pay a rate to the government over an extended period of time, usually anywhere from 4-6 years.

If you owe $50,000 or less, you can apply for an online payment agreement.

If you owe $50,001 or more, then you’ll have to make the request by filing Form 9465 and then proceed with a Collection Information Statement as well. You’ll need these tax forms:

Regardless of how much you owe, you and the IRS will be negotiating on taxes owed. If they agree to lower the amount you owe, there is a possibility you could make partial installment payments. There are no guarantees, but the IRS wants to ensure every taxpayer makes a reasonable effort to pay their taxes owed. In the right case, that could include a partial installment payment plan.

Offer in Compromise

This is a settlement offer that you and your tax professional make to the IRS which amounts to less than the taxes owed. This is how it works: you pay the agreed-upon amount and the IRS will then forgive the remaining balance. This type of payment alternative can be tricky because the taxpayer has to meet a specific criterion that proves they’re eligible. For instance, if the taxpayer is eligible for a payment arrangement then they will not be eligible for offers in compromise. This sort of payment plan option is specifically for those experiencing extraordinary financial hardship. However, if the taxpayer, usually assisted by a professional tax representative, can declare and prove that they’re eligible, then the offer in compromise can be incredibly beneficial.

Applying for an offer in compromise

  1. To apply for an offer in compromise, follow these steps:
  2. Complete IRS Form 656 and 433-A
  3. Include relevant documentation: paystubs, investment statements, bank statements, and other financial documents listed on each of the forms mentioned above. Be sure these are copies, not originals.
  4. Include the $205 fee with your application (low-wage earners may request a waiver). The IRS accepts personal checks.
  5. Mail your application, documents, and fee to the IRS. The appropriate address can be found in this IRS handbook.

Currently Not Collectible

This option is not a payment plan, but more of a diversion of the immediate amount due. In this case, the IRS labels your account ‘not collectible’ and will then wait for your financial situation to improve. Here are a few things to keep in mind if you do apply for non-collectible status:

  • Be sure to file Form 433-F to apply for CNC status.
  • By no means does non-collectible status reduce the amount of the taxes owed — and in most cases, your balance will accrue interest while the status is in effect. However, this delay in the collection process may still be a type of relief if unforeseeable circumstances have arisen, like a natural disaster situation.
  • The IRS will continue to check in to see whether your finances have improved enough to begin collection efforts.

3. Follow Payment Plan Accordingly

Once you’ve secured a repayment plan with the IRS, it’s critical that you meet your expected payments until your tax taxes owed has been paid off. Not meeting payment requirements could cause problems and additional taxes owed later on down the road. There are always options when dealing with tax taxes owed. It’s important that if you’re going to tackle the problem on your own, you do an ample amount of research and understand exactly what repayment option suits your situation best. However, for these types of issues, it’s strongly recommended that you consult a tax professional and ensure that everything is done correctly.

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Consequences of Not Filing Back Taxes

The consequences for failing to pay taxes and failing to file taxes can vary based on the specific situation, with failure to file incurring much higher rates of penalty.

If taxes remain unpaid, a truant taxpayer may be charged high penalty interest rates, see their assets seized, and in rare cases, face jail time. If you don’t pay taxes, the IRS will take collection action against you. It’s usually not immediate, but after enough back taxes go unaccounted for, the government will take action and put a lien on your paycheck or property — perhaps even a state lien, depending on the situation. While jail time is rare, you can count on the federal government to make sure the entire balance you owe gets paid in a reasonable time.

It’s important to file taxes by the deadline and pay any back taxes you may owe in order to avoid penalties, a federal tax levy, and legal consequences.

Will the Government Levy My Assets?

It is possible that the IRS will levy the assets of a taxpayer who has repeatedly failed to make payments. Federal tax levies can take many forms that can affect your credit score, income and even your ability to qualify for property loans.

Individuals who do not fulfil their back tax obligations may be subjected to the following penalties:

Wage Garnishment

If the government imposes wage garnishment on your income, your employer will be legally required to withhold a certain percentage of your pay to cover unpaid taxes. This is the easiest of the punishments the government can enforce when there’s failure to pay taxes. These tend to be steeper percentages, taking more out of your month in wage income than if you had a payment plan option. They can even garnish your Social Security benefits, so make sure you pay close attention if you have outstanding taxes due.

Federal Tax Liens

If a tax lien is enforced, the government has claimed your property as an assurance of rights to your property over other creditors waiting for tax payments. These liens also appear on your credit report. That means if you lose your property to the government, it will go towards your taxes, and you’ll still owe money to creditors.

Bank Levies

Tax officials will demand that your bank puts a hold on the funds in your bank accounts, and seize said funds to cover your unpaid tax liability. Bank levies are not instant. The government has 21 days before they can legally withdraw the money from your account to cover your overdue balance.

Property Seizure

Property owners face a particular consequence for severe behavior: All of your property assets are up for grabs if you have repeatedly avoided repaying your taxes. Authorities may seize items such as your home, car, boat, or any other asset that might be sold to cover your taxes owed. Again, when this occurs, the funds derived from the sale of your property(s) help to clear your taxes owed, but do not contribute to the individual loans owed for any of the given properties seized. That means you may be paying on mortgage payments for a property that the IRS seized to settle your unpaid taxes.

It is essential that you speak with a tax professional as quickly as possible to formulate a payment plan that will work for your individual needs.

How Many Years Later Can You File Back Taxes?

No matter when you last paid taxes, it’s critical to file a tax return for every year that you have not paid.
Tax balances builds over time and doesn’t just go away, and the additional penalties associated with failing to file your taxes will be added to the total that you owe the IRS. The deadline to file back taxes and still be able to claim a refund, however, is 3 years. You will also be able to claim any tax credits you are owed if you file within that deadline.
After 3 years, however, you forgo your claim to any refunds or tax credits.

Advantage of Taxpayers Filing Back Taxes

The advantages to filing back taxes are straightforward: failing to file incurs a fee of 5% of your unpaid tax balance. By filing your back taxes, even if you haven’t figured how you plan to pay them, you can dodge that additional fee. It’s to the advantage of taxpayers to do the work of filing their taxes promptly. Additionally, if you fail to file your taxes, the IRS will do it for you. While that may sound nice, it won’t benefit you; the IRS will not grant you every deduction, exemption, and tax credit you are eligible for, thus reducing your refund or increasing your bill.
By filing your taxes yourself, or working with tax preparation professionals like Community Tax, you’ll be able to claim all the tax relief that you are eligible for. Filing taxes for previous years can be difficult, however.
A Community Tax representative is happy to help you organize your taxes and file them correctly, so you can avoid any more late penalties fees and ensure that you claim every bit of tax relief you are entitled to.

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What if I Have Been Audited?

Although audits are usually rare, there is still a chance that the IRS will investigate a claim. Sometimes the computer system will catch a red flag and then do its due diligence on its own. If a taxpayer is being audited for back taxes, the first thing to assess is exactly what is being audited and why. Once these questions are answered, you will be able to understand exactly what sort of documentation you need to provide to prove that your taxes are accurate.

In the case that you do not have any of these documents available, you will then have to proceed to third parties to obtain proof of your claim.

Moving Forward on Taxes Owed

Back taxes are not something to be taken lightly and can often prove to be quite complicated.
In order to ensure that you do not run into further trouble or continue to accrue interest on your outstanding tax balance, the right steps need to be handled carefully, quickly, and professionally.

With the many options available to get back taxes help, choosing the correct path to tax resolution can be difficult. Community Tax provides full-service tax help and employs experienced tax practitioners who are able to analyze your particular circumstances, identify the source of the tax balances, and develop a plan to most efficiently resolve your back tax problems including filing back taxes. Community Tax is proud to offer free consultations, so you can get to know us before committing to a back tax resolution plan.

Find the back tax help that best fits you as soon as possible, and don’t risk falling any further into back taxes owed, by calling Community Tax today at 1-888-676-4319.

Tax Resolution Help.

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