10 Reasons to File IRS Back Taxes & Steps to Filing Taxes Late

file back taxes

The IRS has an unwritten policy about not prosecuting people who voluntarily file back taxes. However, things are different if the IRS finds you first. If you don’t file, the IRS may file a return on your behalf—that usually leads to a higher than usual tax liability. Additionally, if you repeatedly fail to file, you may face criminal prosecution.

Even if you don’t owe any taxes and you haven’t filed, the IRS has a statute of limitations on claiming past refunds which will result in you paying a higher than average tax rate than you need to. The IRS will gladly keep the money they owe you if you don’t file a tax return and prove that you have overpaid them for the years they collected taxes.

Failure to file or pay your taxes can be a misdemeanor with penalties of up to one year in prison and fines up to $100,000 for individuals and $200,000 for businesses. For tax evasion or fraud, you can face up to five years in prison and fines of $250,000 for individuals and $500,000 for corporations.

That’s why it’s critical to stay on top of your filing requirements and file back taxes even if they’re late. Luckily, it’s possible to file taxes from decades ago as long as you have the right documents.

Top 10 Reasons You Should File Back Taxes

  1. Filing voluntarily results in less severe consequences than if the IRS finds you first.
  2. Even if you can’t pay, the IRS may let you negotiate a settlement or set up a payment plan. The sooner action is taken, the less the penalties and interest will be.
  3. If you do not owe taxes, you might get a refund. Note the IRS only pays refunds if you file within three years of the due date.
  4. If you don’t file and you owe tax, penalties and interest will continue to grow and increase the total amount you owe.
  5. If you don’t file, the IRS may complete a “Substitute for Return”. This single return can span multiple years, and the IRS doesn’t put in any federal exemptions or expenses. It is very likely that if the IRS completes a Substitute for Return, the total tax liability will be overstated.
  6. After completing a substitute return for you, the IRS will begin collection activity. They may place a tax levy on wages or bank accounts or a federal tax lien on your personal property.
  7. If the IRS has completed a substitute return for you, you should still file a return for those years. Filing back taxes at that point can reduce how much you owe.
  8. If the IRS issues a tax lien, that appears on your credit report. At that point, it becomes tough to get car loans or mortgages.
  9. If you are applying for a payment plan, an offer in compromise, or multiple other arrangements for current tax debt, the IRS will not approve those plans unless you have filed your old tax returns.
  10. When you file, you have peace of mind that the issue is taken care of. You don’t have to worry about what’s going to happen if the IRS finds you.

How to File Back Taxes

  1. Find the records and documents you need to file your old returns. The materials include W2’s, 1099 tax documents, income records from your business, and receipts and old bills for business expenses.
  2. If you can’t find the documents you need, contact old employers or financial institutions and ask them for documents. If they do not have the information, you can call the IRS and request income data for missing years. It is likely that the IRS will have these details because all companies are required to report this information to the IRS.
  3. If you can’t get the forms you need, use Form 4852. This IRS form works as a substitute for W-2’s, wage and tax statements, 1099’s, and distribution records from pensions, IRAs, etc. You just estimate the amounts.
  4. Find the tax forms for the years which you are filing. Exemptions and credits change annually, so it’s critical to use forms from the correct years. You can get these forms from the IRS website or a tax professional.
  5. Fill out the tax returns. Make sure to claim deductions, exemptions, and credits to reduce your total tax liability.
  6. For best results, if you are going to owe taxes after filing, contact a tax resolution firm to help you. If you don’t believe you will owe taxes, then you can use a certified public accountant or a qualified tax preparer to file the past late tax returns.
  7. If you owe taxes and want to set up your own resolution, apply for a payment plan when you file your back taxes. You can do that with Form 9465 (Installment Agreement Request) or apply online through the IRS’s online request page. You may also need to submit Form 433-F (Collection Information Statement).
  8. Send the forms to the IRS. If the IRS sent you a notice requesting you to file your back taxes, send your forms to the address on that notice. If you are voluntarily filing, use the address you usually use for your tax return. Typically, you can’t e-file back taxes.
  9. If you can’t afford to pay everything that you owe, consider applying for a settlement. That’s where you pay less than you owe.
  10. Alternatively, consider applying for uncollectible status. If you can prove that you have no money, the IRS stops collection activity. These filings can be complicated so you may want to work with a professional.

Advice for Success With Filing Back Taxes

  1. Do not delay. The longer you wait, the worse the penalties can get. It is NEVER too late to file a return.
  2. Use a tax professional who can file and reduce your back taxes. Usually, you end up saving more money by using a tax professional than you would if you attempted to handle everything on your own. These experts have handled many situations just like yours, and they know how to negotiate with the IRS successfully. This is especially important if you don’t have enough money to pay the taxes owed.

If you would like a professional tax team on your side to help you file and resolve back taxes, request help using the form above. We can give you a complimentary consultation to help you understand the process and identify your next move.

Request Help Filing Back Taxes

Methods to Pay Back Taxes Owed
The IRS offers various options to taxpayers that cannot pay in full. The method that is used is dependent upon your unique financial situation. This guide will help you find the best solution.

Ways to Settle Back Taxes
If you owe taxes that cannot be paid in full after taxes have been filed it is important to come to a settlement with the IRS to prevent additional interest and penalties from accumulating. This guide will help you find the best settlement method.

Consequences of Having Unfiled Back Taxes
Having unfiled returns is far worse than filing the returns and not paying. Will the IRS find you? What happens when they do.

Potential Tax Penalties for Filing Late
Q&A about various situations and the tax penalties (if any) that are associated with filing taxes late.

File Back Taxes Abroad or Overseas
Guide on why and when a US citizen who is abroad needs to file a tax return and how to do so and what forms to use.

How to Find Out How Much IRS Taxes You Owe
Three methods to find out how much you owe in taxes if you are unsure.