Filing tax returns is the most convenient way of taking care of back taxes. The IRS (Internal Revenue Service) has no official limitations of how long a taxpayer may file past due tax returns.
It’s a tricky issue since taxpayers may face penalties upon not paying for longer than six years. It’s also worth mentioning that if a taxpayer is hesitating for more than three years, they can’t expect to get a refund. Taxpayers have several options when it comes to taking control of their back taxes.
Important facts:
- A back tax is any return a taxpayer didn’t file for previous years.
- The IRS has no strict limits to when you can file back taxes, but postponing for three or more years leads to losing any chance for a refund.
- The IRS has all the data about taxpayers’ income through forms. As you know, businesses must report how much they pay self-employed individuals. That’s how the IRS knows who owes taxes to the state.
- You can’t file back taxes electronically. The IRS requests filing physical documents. However, taxpayers can calculate their returns electronically on a chosen software, but then they have to print out and submit these documents to the IRS by mail.
Three Years to Get a Refund, Six Years to File Back Taxes
As mentioned, there are no strict limits to how many years a taxpayer has to submit back taxes, but there is a crucial peculiarity. If a taxpayer wants to claim credits or deductions, they have only three years. So, it’s worth reporting your income when it’s due — and there is another reason.
If a taxpayer doesn’t file tax returns for the past six years, they show up on the IRS “radar.” The issue here is that the IRS eventually interferes and submits a substitute tax return instead of a taxpayer if they procrastinate. And that’s the biggest problem for the taxpayer — the IRS will most likely file more than the taxpayer actually earns.
Moreover, when taxpayers calculate their income, they take care of claiming deductions and credits — none of these are concerns of the IRS. The agency is interested in reporting your tax return, so you lose your chance to reduce the tax burden.
As a result of not claiming credits and deductions, taxpayers owe more taxes than they actually do. That’s why, try to avoid postponing for longer than three years. The best way, in this case, is to ask a professional to do taxes instead of you. In the future, it should be much easier to calculate and file taxes.
Note that taxpayers usually receive a warning before the IRS decides to take the issue into their hands. Usually, taxpayers get Notice of Deficiency CP3219N. This document gives 90 days to file the past due tax return, including deductions and credits. Another option is to file a petition with the Tax Court to argue the taxpayer’s case.
Documents To File Back Taxes
The key point here is to collect as much information as possible. If you have W-2 forms received from employers, copies of documents on the last tax return, other helpful documents, collect them since they might be helpful. Make sure to gather all documents from the period of not filing tax returns.
Consider filling out and submitting Form 4506-T to the IRS to get data about missing years past documents. The IRS should send all copies back to the taxpayer. Another option is to ask an employer to send copies of forms that they sent some time ago.
It’s worth mentioning that an employer or another establishment you asked for to send documents might not have them on hand. It’s also possible that you would have to pay a fine to use this option.
The forms needed to file back taxes are:
- W-2; or
- 1099.
These forms display income a taxpayer has earned during the year or years of not filing taxes. Keep in mind that specific forms are not suitable to fill out to submit as return forms. A simple example is using a form 1040 to report the year 2019 in 2020.
It’s clear with income documents, but what about deductions? Make sure you have all the deductible receipts and documents that prove your spending. Seek bank and credit card statements, maintenance, repair bills, etc. A taxpayer can’t claim deductions and reduce the tax burden without these documents.
How to File and Pay Back Taxes?
Either use the help of a professional or consider using reliable accounting software to then print out documents if you prefer filing yourself. Some software programs are free of charge. Make sure to take time and spend at least one day on each tax return form.
As mentioned, take a look at rules for each specific year, especially forms to file. Regulations may vary, so make sure to do research beforehand. If it’s been several years, then it’s best to hire a CPA with knowledge of all the nuances.
The CPA is a certified public accountant with experience and required skills. Thanks to the license from the state, they can file taxes on your behalf and even advocate with the IRS if needed.
Another thing to keep in mind is filing returns by using mail. Check the IRS website to find officially accepted mail services.
How to Pay Debts and Collect Tax Refunds?
Paying is not the challenge here. As long as you manage to calculate and fill out tax forms, it will be easy to pay all debts. The easiest way is to go to the official IRS website and choose their Direct Pay option.
A taxpayer may use their checking or savings account or use a debit or credit card to pay. Make sure to keep in mind limits to getting tax reimbursement. This option expires three years from the date a taxpayer’s return was due. However, if a taxpayer has a balance from filing during the previous year, most likely, the refund will be used to offset that debt.
If a taxpayer owes money to the IRS, the best way to fix the problem is to create a clear plan. The plan should include ways of protecting oneself from potential IRS investigations, federal tax lien, etc.
Consider contacting the IRS to set an installment agreement about returning the debt. Most likely, they will agree upon a certain plan that requires monthly payments to return the entire debt. A compromise with the IRS is also possible; more on that below. Note the IRS has the right to impose penalties and interest on tax liabilities that weren’t paid entirely by the end of the deadline.
Installment Agreement
This option means getting 72 months delay to pay the entire debt. Note this option works only for individuals and businesses that owe less than $50,000. Go to the official IRS website to set an agreement for a fee.
Offer in Compromise
Typically, a compromise is less common than an agreement. This option is used if a taxpayer wants to pay less than the full balance due. The best idea, in this case, is to use the help of a lawyer.
Planning Ahead to Pay Back Taxes
The obvious way to avoid having problems with back taxes is to file returns during the tax season. Keep all documents, including receipts, in one place. Take the time you need to review the rules on the official IRS website. Research what credits and deductions are possible to claim and back this data with proper documents.
If a taxpayer believes they owe back taxes, the best idea is to contact a professional accountant. The accountant can give valuable advice and help collect all necessary forms in case some of them are missing.
Typically, some self-employed individuals face difficulties when filing taxes since, unlike regular employees, they don’t get regular withholdings from their paychecks. These groups of people should consider calculating estimated tax returns for the year and divide them by four to make regular quarterly payments.
How to File Back Tax Returns?
As mentioned, it’s impossible to file back taxes online. Send return forms to the IRS in separate envelopes. Check the IRS website to see what post-services the IRS accepts. You should also keep the document from the post-service that proves that the IRS received each envelope.
Final Thoughts
The key takeaway is that taxpayers should be aware of the rule of three years. If they don’t file their returns with the IRS for more than three years, they lose the chance to claim reimbursements. Moreover, taxpayers get penalties for not filing their returns when it’s due. The best option is to file return forms and pay taxes on time to not worry about owing money to the agency.
FAQs
How many years can the IRS collect back taxes?
The IRS has to meet the 10-year limitation on collecting debts from taxpayers. Thus the agency has ten years upon making all calculations to collect all debts. In some cases, it’s possible to extend this period.
How to file back taxes online?
As mentioned in this article, the IRS accepts back taxes only by mail. However, for some taxpayers, it’s much easier to use online software or even the IRS e-file form to calculate and fill out their returns. But individuals should print out these filled-out forms and send them by mail.
How to find out whether you owe taxes?
It’s possible to contact the IRS directly by using any official means published on their website. But typically, taxpayers owing money don’t need to do anything since the agency starts sending notices early on. It means taxpayers are informed by the IRS if they owe anything.
