November 24, 2016

backtaxesEvery year, millions of individuals—roughly 5% of all taxpayers—fall behind on filing taxes for various reasons. The reality, however, is that failing to file a past tax return can have serious consequences—such as the IRS levying your bank account or wages or filing a federal tax lien against you.

If you haven’t filed your taxes in years, it’s time you face the issue head on. It is unlikely that the IRS will give you a very hard time if they see that you are attempting to resolve your tax situation in good faith.

The first thing you need to do is gather the necessary documents. See to it that you have your W-2 or Form 1099 for every year you failed to file a tax return. If you are unable to locate this paperwork, ask your employer for a copy of your income information. You can also request the IRS for missing tax documents by filing Form 4506-T. Be sure to have receipts on hand for any credits and deductions you plan to claim.

Note that taxes for the previous two years and the current tax year can be filed electronically. Anything earlier than that will need to be filed by hand. The IRS takes roughly six weeks to process overdue tax returns, after which you can expect to receive a bill indicating the exact amount due. The 10-year statute of limitations on tax collection will begin from the date that your tax is assessed.

Of course, expect there to be interest and penalties. You will be required to pay a standard penalty rate of 5% for each month that you miss a payment, up to a total of 25%. You will also be required to pay an interest rate amounting to 3%, as well as a failure-to-pay penalty of 0.5%. You then become responsible for paying the amount that is owed. If you have reasonable cause, such as a mental illness or the death of a family member, the IRS may consider reducing your penalties.

Of course, paying your overdue tax bill is the truly difficult part about resolving your issues with the IRS. Remember to relax and take a slow and steady approach. While it is possible to be placed behind bars for your failing to file, you certainly will not go to jail for your inability to pay. If you are cooperative, the more likely the agency is to give you the time you need to file your overdue tax returns. You can consider requesting the IRS for a 60 to 120-day window to pay them in full, or even negotiating with the IRS for an installment agreement.

 If you are uneasy with the idea of contacting the IRS directly, another option is to hire a tax lawyer to help you handle the situation. You simply need to sign IRS Form 2848, which allows for a tax attorney to speak and act on your behalf.

Categories: IRS, Tax Penalties, Tax Tips, Uncategorized