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How to File Back Taxes

Back taxes are tax reports that were delinquently filed or not filed at the end of a taxable year. It is important to file all back tax returns as soon as possible. You may be missing out on money the Internal Revenue Service (IRS) owes you or you may have stiff penalties for the money you should have paid. Even if you cannot pay the total taxes due, the IRS may be able to offer a payment schedule.

Read below to find out more about how to back taxes.

The importance of filing back taxes

Filing back taxes may help you gain a refund you may have lost by not filing. If you owe money to the federal or state government, you can begin to make payments after you file your back taxes. Tax dollars get lost every year due to non-payment of back taxes.

Refusing to file taxes for more than three years is punishable on both federal and state levels. The IRS may give extensions in individual situations. But, if the back taxes have not been filed within that timeframe, penalties or legal actions may apply.

After the maximum allowed time for filing has expired, the law prevents the IRS from issuing future tax refunds. Refusal to file within this period will also result in denial of tax credits and enrollment in payment programs. However, there is a slight loophole in the system; the tax return must be filed before the three-year cap starts.

Taxpayers who are self-employed and have not filed an income tax return may lose out on Social Security benefits. Overlooking self-employment taxes can also affect retirement and disability benefits since Social Security taxation is for them as well.

Overlooked back taxes may hinder your chances of being approved for a loan. Most financial lenders require proof of paid taxes for the past two or three years before they will consider loaning money.

Gathering back tax information

Find all documentation needed to file taxes for the years you have not submitted in income tax return, such as W-2s or 1099s. Collect all receipts or contracts that may prove beneficial in receiving any tax deductions.

If you are missing any IRS forms or back tax information, request copies from your employer and the IRS. Form 4506-T is an IRS form used to request previous year’s tax statements. Since the tax forms are year specific, you will need to use the filing instruction for the year you wish to file.

Deciding who will prepare back taxes

You can either prepare the back taxes yourself or ask a Tax Expert for help. If you decide to file back taxes yourself by using a tax software allow 2 - 3 hours for each year you intend to file. Asking a Tax Expert is a good way to ensure the forms are filed properly and you will receive or pay the correct amounts.

Preparing and filing back taxes

For taxpayers employed with a company, filing back taxes may be simple. The W-2 Form lists the amount of taxes taken out for federal, state, and social security. Life changes such as a birth, marriage or divorce or change in job, may result in a change in back taxes owed. In general, standard deductions apply. Additional deductions includes property taxes or mortgage tax, charitable donations, and mileage if it applies to the job.

Most taxpayers qualify for free preparation from the IRS if they fall under the standard deduction status.

If you are using a tax software to file your back taxes, you may copy your numbers to a comparable software. This is to make sure the ending numbers match and your back taxes are filed correctly.

Installment plans

Some taxpayers may find it difficult to pay the back taxes they owe. The IRS offers several installment plans so taxpayers have a reasonable payment. To be eligible for a payment plan, you must file all delinquent back taxes and be current. Businesses and individuals must owe under the cap amount allowed by the IRS.

The IRS may withhold all or part of any future tax refund until the amount owed is paid in full. This does not exempt the taxpayer from paying their payment within the agreed installment plan. If any changes occur in residence, the taxpayer is required to inform the IRS to receive your monthly installment agreement.

The IRS also has a “Fresh Start” program that was put in place to help citizens who seem to be struggling with back taxes. The “Fresh Start” program has provisions that can offer tax breaks. These tax break can be offered to those who cannot pay due to loss of job, being out of the country or overseas with the military.

Relief for following tax penalties may apply to taxpayers who were unemployed for 30 days within the taxable year. With the tax relief program, the penalty stays at 5% of the annual taxable gross. This is subject to increase if the wage earner does not comply with the installment agreement.

IRS substitute tax return

The IRS keeps records of taxpayers who continuously fail to file taxes and is required to file substitute tax returns in their place. In many cases, the IRS will send out multiple letters that describe what the substitute tax program means. The program works by filing for those who do not file or have expressed a formal disagreement with the IRS. The substitute tax form will be mailed to the taxpayer and they will be liable to pay the amount stated.

It is vital to file your back taxes as soon as possible. If you have issues that have prevented you from filing, ask a Tax Expert for help. A Tax Expert can provide you with all of your options and help with filing your income tax returns.  

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