Back Taxes: Filing Late Tax Returns

Essential Information to Help You File Back Taxes

Woman completing tax form
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Nobody wants to run afoul of the Internal Revenue Service, but it can be unnervingly easy to do. Mistakes and oversights can happen. If you haven't filed your taxes in a few years, you may be wondering how you can dig your way out of this bad situation.

You might be surprised to learn that filing your tax returns can be the quickest way out of tax trouble, but you'll have to protect yourself in the process.

Here are five steps to help you take control of your back taxes. 

Step One: Gather All Your Tax Documents

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? You can request copies of your tax documents from the Internal Revenue Service for free if you are missing anything, or contact your employer or the institution that would have sent them to you. Keep in mind that they may not still have them on file, however, or at least they may not be easily accessible. There might be a fee if you choose this option. 

Step Two: Prepare the Tax Returns or Hire a Tax Professional

Be sure to use reliable and easy-to-use software if you're going to prepare your tax returns yourself. Plan on spending about two to three hours on each tax return you need to file.

You might do better with an experienced tax professional, however, because he can help you deal with the IRS.

The best way to find a tax pro is to ask your friends. Look for someone with significant experience in preparing back taxes. If you need advice on how to handle incomplete tax documentation or an advocate who will negotiate with the IRS on your behalf, a tax professional is the way to go. 

Step Three: Protect Your Tax Refunds

Believe it or not, many late filers are entitled to tax refunds.

There are strict time limits for refunds, audits, and debt collection. In most cases, you have three years from the date your tax return was due before your refund "expires." But if you owe other tax debts, such as because you have a balance due from another year, your refund will typically be applied to that debt. 

Step Four: Pay Off Your Tax Debts

Create a plan for paying off your tax debts if it turns out that you owe the IRS money. You may also need to plan on how to protect yourself from an IRS investigation, assessment, levy or lien, and this is where a tax professional can be helpful. 

Your plan of action might be as simple as setting up an installment agreement with the IRS for a monthly payment plan or asking for an offer in compromise. Depending on your circumstances, an installment agreement can give you up to 72 months to pay, but you must owe the IRS $50,000 or less to qualify. Simply file IRS Form 9465, the Installment Agreement Request, with your tax return. If you owe less than $10,000, your request will most likely be automatically approved. 

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.

You'll typically need the help of a professional for this. You must establish that you cannot pay your balance through an installment agreement or by any other means. 

Either way, address the situation as promptly as possible. Ignoring the IRS can get you into big trouble very fast.

Step Five: Plan Ahead

Your next plan of action should be to focus on the future. It is a good opportunity to review your overall tax situation and to come up with strategies for reducing your taxes and achieving your financial goals. Again, a tax professional can help. If you think you might owe the IRS next year as well, consider making estimated tax payments in advance, if possible, to avoid having to deal with a lump sum again. 

The Tax Laws You Really Need to Know

Sometimes the IRS will take an educated guess about what your tax liability might be.

The IRS will then send you a notice of proposed assessment, or even file a return on your behalf. You can reduce or eliminate the IRS proposed assessments by filing your back tax returns.

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.

Your tax information is absolutely, totally and completely confidential. A tax professional is ethically and legally obligated not to share your information with anyone – not even with the IRS – unless he or she has your explicit authorization.

Some Final Tips on Filing Back Taxes

Late tax returns must be filed on paper and mailed to your local IRS Service Center. You can use tax software to prepare your returns, but then you must print them out and mail them in. You cannot file late returns electronically. 

Mail your tax returns in separate envelopes and send them by certified mail. This way you'll have proof that the IRS received each individual return. Mailing them in separate envelopes will also help prevent the IRS from making any clerical errors in processing them. 

Hand deliver your tax returns to your local IRS office if time is of the essence. Make extra copies of page one of each return and take the copies with you. Ask the IRS representative to stamp the copies as received. These receipts will provide evidence of what you filed when you filed, and where you filed.