So, you are a lot behind on your taxes. When life throws us a curveball, it can feel too hard to deal with taxes and paperwork immediately. Then life goes on, and catching up feels so hard that it’s almost overwhelming. You’ll soon be at a stage where you haven’t filed taxes in 10 years.
Now, you do have a problem with your taxes.
You can get caught up on your taxes, which is good news. If you enlist some help with the paperwork, it might go smoother than you’d expect. Even though it’s been a while since you filed a tax return, figuring out what you owe and getting things straightened out with the IRS is easier and more manageable than you might think, especially if you take the initiative.
what happens if you haven’t filed your taxes in 10 years?
A few things could happen if you haven’t sent your tax returns to the IRS.
consequences with the IRS
If you don’t report all of your income on your taxes, the IRS may charge you penalties and fees. Also, the amount of money the IRS thinks you made will be much higher than what you would have reported.
This is because the IRS doesn’t consider tax credits or deductions you would have used if you had done your taxes. The IRS files your tax return for you using its accounting system. Keep in mind that they don’t have any records of your expenses like rent, equipment, and other deductions that would lower your tax liability. The estimated balance with the IRS will then start to rack up fees.
Every month that a tax return is late, the IRS charges a 5% tax-filing late filing penalty and a 5% late payment penalty. This fee, however, is limited to a maximum tax penalty of 25%, so the total fees won’t keep going up forever.
If you haven’t filed your taxes in a few years, the IRS may decide to take money from your wages or bank account to pay off your tax bill. This can lead to your wages or other income being taken from you.
The IRS may also send you a notice of a federal tax lien, which may restrict your future financial options. If the IRS puts a tax lien on you, it can make it hard for you to borrow money or use your credit. A lien can also make it hard for you to sell the property or other assets since the government will now have a say in the deal and will take the amount of tax you owe out of the money from the sale.
In the worst case, the IRS can put people in jail for up to five years and fine them up to $250,000 for not paying their taxes.
effects in other places
Many other problems can happen if you don’t file your taxes. Not only could you lose out on possible tax refunds, but you may also have to show your recent tax returns in other parts of your life. If you haven’t done your taxes in the last few years, you won’t have any tax returns!
For example, you might be asked to show your most recent tax returns if you want to get a passport. When you apply for a mortgage, rent, or other loans, you will undoubtedly be asked to show your tax returns. When you apply for health insurance, you may also be asked for your most recent tax returns.
When you or your child applies for college financial aid, you will also need to send in your most recent federal tax returns. Lastly, the benefits you get when you retire, like Social Security and Medicare, depending on how much money you report on your tax returns. If you don’t submit your tax return for a long time, it could hurt your future income.
here’s how to get back on track if you last filed your taxes ten years ago.
Are you ready to start over? When you’re ready to clean up the missing returns from previous years, it’s best to take action as soon as possible.
step 1: check your status with the IRS
If you don’t file your taxes, the IRS will often file a substitution for return on your behalf. The IRS figures out how much it thinks you owe, but it doesn’t take any deductions or exemptions into account.
The IRS then sends you a tax notice (CP3219N, also called a 90-day letter), which tells you what it plans to file on your behalf. If you don’t respond to the letter, the IRS will file the tax return it thinks you need to file, and then fees will start.
If you haven’t filed your taxes for a few years or more, you may have gotten a lot of letters from the IRS. If you didn’t get these letters, you could call the IRS at 800-829-1040 or 800-829-4059 to find out what’s going on with your tax return.
step 2: decide if you want to pay someone else or do your taxes
If the IRS filed substitute tax returns for you, you could choose how to move forward. One option is to pay the IRS the tax and fees it says you owe. This is a pretty easy way to pay your taxes, and if you can’t pay the total amount right away, the IRS has some plans to help, like an installment agreement.
Paying the tax debt and fees will stop a tax levy, but it might not get you the tax forms you need for other things, like a new mortgage loan. Also, since the IRS substitute returns don’t have any deductions, you’ll probably end up paying more than you need to.
If you decide to file your own tax returns for the missing years, you may pay much less and will have the tax forms you need for future financial decisions.
step 3: gather your financial information to fill out your tax forms
If you haven’t yet filed tax returns for the last 10 years because you didn’t keep good records, you’ll need to do forensic accounting to figure out how much money you made and how much you spent. A forensic accountant or a CPA can help if you want to outsource part of the work. You will need the following:
- Unfinished records – Fill in all the blanks and missing information in your financial records, so you are ready to file. In particular, you should keep accurate records of your income and expenses for each year to determine your exact income and the maximum deductions and credits you can claim on your tax return.
- Documents to back up your claim: Your receipts and income statements will be written down in your financial records, but keep these and any other documents that could help explain why you were late sending in your taxes for so long. Having proof that your numbers are correct and that you were late can give you peace of mind as you clean up.
The IRS can also help you fill in some of the blanks about your taxes. Form 4506 is a request for a transcript of an old return. You can ask the IRS for information about your wages and income for a particular year. Make sure the box on line 8 is checked. A request for a transcript for missing years can also tell you what the IRS has filed on your behalf.
step 4: file the tax returns you forgot to send in
There is no deadline for sending in old tax returns, so you can send the IRS your missing tax forms as soon as you have everything you need. Even better, if you are eligible for a tax return, you can still file it up to three years after the deadline.
Remember that there are two parts to filing a business tax return. The first step is to send the IRS the business tax forms. With this form, you can file your taxes and let the IRS know how much money you made and how much you owe.
step 5: pay your taxes, either all at once, through a settlement agreement, by getting them forgiven, or by making an offer in compromise
The second step in filing the missing tax return is to pay the due taxes. You can use a credit card or a bank draft to pay your taxes. If you’re filing tax forms for many years at once, you may have a lot of back taxes to pay.
Even if it’s been years since the due date, the IRS is willing and able to work with people who can’t pay their taxes in full by the due date. You can choose between payment plans and other options if you can’t pay the total amount right away.
The IRS can settle your tax debt with you in many ways, such as:
- Establishing an installment or payment plan for back taxes
- Make a compromise offer to the IRS, agreeing to pay less than you owe on your tax debt. You’ll probably need to work with a tax resolution specialist, an enrolled agent, or a tax attorney.
- Ask for a status of Currently Not Collectible to put off payment until you can afford it better.
- Get a loan to pay the taxes you owe.
step 6: prepare for future taxes
Before you close the bookkeeping software you used to organize your newly updated tax forms, make sure it’s also updated for future tax-filing. A clean accounting system can make it easier to keep track of income and expenses and file taxes on time each year. Set up the accounting for your business now, so you don’t have to worry about tax problems with your federal or state tax returns this year or in the future.
If you’re ready to file tax returns for years you didn’t, you may need help reviewing your old records, updating your income and expenses, and making sure you’re paying only what you have to. The team at Countick knows how to sort out the finances and find tax experts who can help you file the missing tax returns.
in conclusion
It can be stressful to be way behind on your taxes. You don’t have to feel frozen, though. To get your back taxes in order, you need to clean up your books, file the necessary paperwork, and figure out how to pay the taxes you owe. Right now, the most important thing you can do is to start.
