Filing your tax returns can be the quickest and easiest way out of any back tax issues. The Internal Revenue Service (IRS) technically doesn’t impose a statute of limitations on how long you have to file past-due tax returns. You can do it at any time—the IRS won’t decline your return—but you only have three years to file if you want to claim a refund for a tax year, and the IRS might take action against you after six years.
Here are some steps to follow to take control of your back taxes.
- Back taxes are any unfiled tax returns for previous tax years.
- There’s no limit to how long you have to file back taxes, but you’ll lose any refund that you might have coming if you wait more than three years.
- The IRS will eventually catch up with you if you earned any income during those missed years because they would have received information returns from anyone who paid you, alerting them that you received taxable income.
- Back tax returns must be filed on paper and mailed to the IRS—they can’t be filed electronically. You may be able to use tax software to prepare your returns, but you’ll have to print them out and mail them in to the IRS.
6 Years for Filing Back Taxes, 3 Years to Claim a Tax Refund
There might not be a hard limit to how many years you have to file back taxes, but that’s not to say that the IRS doesn’t want your returns sooner rather than later. You must have filed tax returns for the last six years to be considered in “good standing” with the IRS. And if you want to claim a tax refund for a past year, you’ll need to file within three years.
The IRS will eventually intercede and file a substitute tax return for you if you wait too long and if you had any income during the year in question, and this probably would not be in your best interest. They won’t worry about claiming any tax credits or deductions that you might be entitled to. They’ll prepare a rudimentary tax return for you without them, so you’ll most likely end up owing more than if you had prepared the return yourself or paid a professional to do it for you.
You’ll have some notice before this happens. You’ll receive a Notice of Deficiency CP3219N giving you 90 days to either file the past-due tax return yourself—preparing it with those deductions and credits—or to file a petition with the Tax Court to argue your case.
What Tax Documents Do I Need to File Back Taxes?
When was the last year you filed? Do you have a copy of that tax return? Do you still have W-2s and other tax documents for the years you didn't file?
Keep in mind that current or former employers or other establishments might not still have these documents on file, or at least they may not be easily accessible. There might also be a fee if you choose this option.
At a minimum, you’ll need Forms W-2 and 1099 for any income you brought in during the year in question, as well as specific tax returns and forms for that tax year. For example, you can’t file a 2020 Form 1040 to report 2019 income. You should also gather supporting documentation of anything you spent that year that might be tax deductible or that will qualify you for tax credits, such as bank statements and credit card statements for that period of time.
How Can I File and Pay My Back Taxes?
It’s best to use reliable and easy-to-use software if you're going to prepare your tax returns yourself. Plan on spending a few hours on each tax return you have to file. There are tax software programs that can help you for free.
Again, make sure you’re using software and forms for the appropriate tax year. Regulations vary from year to year, and the software settings can be critical for compliance as well as your liabilities or refund.
You might get a better result by hiring an experienced tax professional because they can help you with more complicated tax compliance and know how to deal with the IRS, if necessary.
Look for someone with significant experience in preparing back taxes if you decide to use the services of a professional. This would be the way to go if you need advice on handling incomplete tax documentation, or an advocate who will negotiate with the IRS on your behalf.
You’ll need to print out the back tax returns and mail them in to the IRS to officially file them. You can’t do it online.
Paying Debts and Collecting Tax Refunds
Paying any tax due on each completed return is relatively simple. The IRS wants your money, so it doesn’t make the process challenging. You can go to its Direct Pay website to pay by electronic debit from your checking or savings account, and the IRS accepts credit card payments on its website, as well.
Keep in mind that there are time limits for refunds, audits, and debt collection. In most cases, your refund "expires” three years from the date your tax return was due. But if you owe other tax debts—because you have a balance due from another year, for example—your refund will typically be applied to offset that debt.
Create a plan for paying off your tax debts if it turns out that you owe the IRS money. You might also want to plan on how to protect yourself from an IRS investigation, assessment, federal tax lien, or possibly a levy. You may have a few options, such as setting up an installment agreement with the IRS for a monthly payment plan or asking for an offer in compromise.
The IRS can and will impose penalties and interest on tax liabilities that aren't paid in full by the deadline for the tax return.
An Installment Agreement
An installment agreement can give you up to 72 months to pay, but you must owe the IRS $50,000 or less to qualify. If you owe less than that amount, you can request an installment agreement online for a fee. Your request should most likely be automatically approved if you owe less than $10,000. You can also file IRS Form 9465, the Installment Agreement Request, with your tax return, regardless of how much you owe.
The IRS charges a fee for the installment agreement unless you think you can pay your balance off within 180 days (six months). This is considered a short-term payment plan and is fee-free, but you may still have to pay interest and applicable penalties until your balance is paid in full.
An Offer in Compromise
An offer in compromise is a bit more complex. It involves reaching an agreement with the IRS to pay less than your full balance due. An offer in compromise is typically only approved if you’re unable to pay through an installment plan and comes with an application fee. You’ll probably need the help of a professional for this option.
You must establish that you cannot pay your balance through an installment agreement or by any other means. All your past due tax returns must be filed before the IRS can grant you this relief, and you must have made some payment toward taxes in the current year, either through withholding from your paychecks or by sending in quarterly estimated payments, even though you haven’t filed a tax return for the year yet.
How to Plan Ahead to Pay Back Taxes
The best way to avoid paying back taxes is filing your annual tax return during tax season. Take time to review your overall tax situation to come up with strategies for reducing your tax bill and achieving your financial goals.
If you think you owe back taxes, consider working with a tax professional who can help you gather past tax returns and file any that you may have missed.
If you think you might owe the IRS when you file your tax return this year or next, consider making estimated tax payments in advance. These payments are generally required for sole proprietors who aren’t subject to withholding from their paychecks by an employer. Making quarterly estimated tax payments can help you to avoid penalties on your upcoming tax return.
Filing Back Tax Returns
You may be able to fill out past-due tax returns through online software or with an accountant, but you’ll need to print the forms and mail them to the IRS.
Mail your back tax returns to the IRS in separate envelopes and send them by certified mail so that you have proof that the IRS received each individual tax return. Mailing them in separate envelopes will also help prevent the IRS from making any clerical errors in processing them. It takes about six weeks for the IRS to process accurately completed back tax returns.
Remember, you can file back taxes with the IRS at any time, but if you want to claim a refund for one of those years, you should file within three years. If you want to stay in good standing with the IRS, you should file back taxes within six years.