We don’t have to tell you that it’s important to file tax return paperwork on time. The Internal Revenue Service begins to accept federal tax returns in late January every year and requires most to be submitted by mid-April. States have similar deadlines. If you don’t file your tax returns on time, you can face a delayed or forfeited refund, fines, penalties and, in extreme cases, legal prosecution.
If life happens and you miss a deadline, don’t panic. You can avoid severe penalties by filing your back taxes as promptly as you can. In this guide, you’ll learn important information about how to claim old refunds, limit penalties and submit your simple returns using fast, easy online services.
Why you should file past returns ASAP
Failing to file your tax return on time can have serious consequences in the long-run. If you have a late IRS tax return or state tax return that needs to be submitted, the best thing to do is to file it as soon as possible so you can avoid—or at least minimize—the following issues.
Limit penalties
The IRS can charge taxpayers penalties for a few reasons. Among the most common is Failure to File, a fine against anyone who doesn’t file their taxes on time. Another fine, Failure to Pay, can also apply to people who file late tax returns when they’ve neglected to pay taxes to the government on time.
Failure to File penalty fines are calculated by how late you submit your tax return. The IRS assesses your unpaid taxes and usually charges 5% of that amount every month that your return is late, up to a maximum of 25% of the unpaid taxes owed.
Failure to Pay penalties accrue monthly from the date the taxes are due as well. The IRS charges 0.5% of the amount they estimate you owe them each month, up to 25% of your unpaid taxes. On top of those penalties, the IRS charges an interest fee that accrues over time.
The good news is that you’re empowered to dispute or negotiate the penalties and interest that the IRS charges you as soon as you submit your tax return.
You can request the government to remove or reduce the amount you owe, particularly if you can prove there’s a good reason for your tardy tax filing. Good reasons include fire, natural disasters, death or severe illness, system issues that delay your electronic filing or an inability to obtain records.
You can also dispute the penalty by calling or writing to the IRS requesting that they reconsider the amount they’re charging you. Revenue officers can accept or reject a reconsideration request for any reason. If you include documentation that has new and pertinent information that supports your request, it may help sway the results in your favor.
Finally, you can apply for a payment plan if you cannot afford to pay your taxes, the penalties or the interest that the IRS requires. Not everyone qualifies to pay the total amount in increments. Still, depending on your tax situation, you may be eligible for a plan that allows you to pay over a short period (180 days or less) or something longer in monthly increments.
Claim a refund
Taxpayers who pay more than their fair share of taxes over the year are entitled to a refund, or payment, that reflects the difference between what they paid and what they truly owe.
If you don’t file a tax return and the IRS owes you a refund, you may not be penalized for your failure to file, but you could lose your opportunity to get access to the money that you deserve. The IRS gives late filers only three years to claim their tax refunds before the government no longer has to pay out.
Avoid issues seeking loans
Suppose you don’t file or pay your taxes over a long enough period. In that case, the IRS will file a lien that legally secures the government’s interest in your current and future property and financial and business assets.
Once liens are issued, they can be tough to shake. Credit reporting agencies wait seven years before they erase paid liens from your credit report, and they keep unpaid liens indefinitely. Either way, a lien makes it difficult to obtain loans and affects your ability to buy or rent a home, procure a car or get a job, even if you file for bankruptcy.
Keep your Social Security
Because social security calculates your future earnings based on your annual tax returns, you can lose out on money if you file too late. For instance, any self-employment income you earn over the year won’t get translated into credits toward future retirement or disability benefits.
If you already receive social security benefits and owe back taxes, the IRS can apply up to 15% of your benefits check to the funds you owe. As a result, you will continue involuntarily paying a portion of your benefits until you resolve your debt entirely.
What happens if you don’t file a tax return
If you don’t file your taxes and also fail to file a tax extension, the IRS will penalize you. They begin by fining you for every month you don’t file. Once some time has passed, they take more serious actions.
Substitute return
Typically two years after you miss a tax return deadline, the IRS may prepare a substitute return (SFR) on your behalf, piecing together what you earned from its access to your employer-provided W-2 and 1099 forms, and without taking any deductions or exemptions into account. Essentially, the IRS reviews your case, assumes you owe them the most money possible, and then charges you interest and penalties based on that figure.
Self-employed business people, freelancers and entrepreneurs are particularly vulnerable to the adverse effects of a substitute return because they often rely heavily on deductions or exemptions to relieve their tax burden. In addition, unlike other tax debt, you can’t get the debt you’ve accrued from a substitute return dismissed if you file for bankruptcy.
Collections
Once the IRS files a substitute and generates a tax bill, you have a specific time to pay that amount before the government takes action to collect. Actions might include:
- Attaching a lien to your property that affects your credit report and score
- Taking your wages, draining your financial accounts or claiming other sources of income
- Repossessing your house, car or business assets
- Issuing additional costly penalties
- Charging you with criminal misconduct, including tax fraud or tax evasion
How to file back tax returns
No matter how late they might be, it’s crucial to file your past tax returns as soon as you can. Here’s how to make that process as painless as possible.
Gather your information
To file a complete and accurate tax return, you need several pieces of information.
First, you’ll need personal information like your name, date of birth, social security number, home address and bank account numbers. If you have your previous year’s tax return on hand, that may be helpful as well.
Next, you’ll need documents showing your income for the year you are filing. Usually, that means an employer’s W-2, a 1099 form, records related to financial transactions or a trust fund.
If you’re self-employed, you’ll also need documentation for all your business expenses, depreciating business assets and miles traveled. Include receipts that itemize everything you are claiming—in the off-chance that the IRS requires you to undergo an audit, you’ll need those records to back up your return.
Most people claim a standard tax deduction, but itemizing yours may help alleviate your tax burden. If that’s the case, you’ll need documentation related to any medical expenses, state and local taxes, charitable donations, student loan payments or mortgage charges you’d like to deduct.
Finally, if someone relies on you for support and you want to claim them as a dependent, you’ll need their name, date of birth and social security number.
Complete the return
Most simple tax returns can be completed online for free through an IRS-related service called Free File or through a paid commercial service like Turbotax.
Free File is a government-backed service that makes it easy to prepare and file your taxes over a secure internet connection for no charge. If you earn $73,000 or less, Free File’s guided tax preparation service will walk you through your tax return by asking simple questions and performing all the calculations. If you don’t qualify for the guided tax preparation, Free File offers free fillable forms that you can prepare and submit yourself.
Online tax preparation services like Turbotax and HRBlock.com also allow you to file your taxes over the internet. With those services, you pay a fee, answer some questions and submit the return through their secure portal. (Note: Turbotax and HRBlock.com are third-party platforms. This is not an endorsement of their services.)
Finally, traditional tax preparation services work with you in person to collect your documents, complete your return and submit it on your behalf. Typically these types of services are more expensive than their online counterparts.
Submit the return
Whether you complete your tax return through Free File or another portal, you must sign and submit your tax return to the IRS and your state government to complete the process.
Check the status of your return
You can always check the status of your tax return by entering your IRS login information on IRS.gov or navigating to the Where’s My Refund tool.
Get help with unfiled tax returns
If you have unfiled tax returns and need guidance on completing them, submitting them or negotiating the penalties and interest you must pay, contact a tax attorney. They can listen to your situation, take note of any extenuating circumstances and guide you toward a solution that will get you legally and financially back on track as soon as possible.
