Are you one of the millions of Americans who haven’t filed taxes in 5 years?
If so, you aren’t alone. Filing taxes on time is something many Americans struggle with.
But whether you haven’t filed in one or multiple years due to extenuating or situational circumstances, you need to take action now. Ignoring this problem won’t make it go away.
Here is everything you need to know about what to do if haven’t filed taxes in years:
Learn the Ramifications of No Tax Filing
Not filing taxes for five years can have severe repercussions. But generally, these are the main consequences that you will face:
Failure-to-file penalty is one of the most severe consequences of not filing or filing taxes late. If an individual does not file their taxes by the due date, they will face a hefty penalty. This follows a system of prescribed increasing per-month rates.
For example, if someone files three months late, they will face a final penalty of five percent of the unpaid taxes for each extra month their taxes remain unpaid. Furthermore, if someone files taxes more than 60 days late, they will be subject to an even higher penalty. The penalty will be either $205 or 100 percent of the unpaid taxes, whichever is smaller.
The failure-to-pay penalty is a percentage of the unpaid taxes that accumulate every month until the tax is paid. This penalty can be up to 25% of the unpaid taxes. For returning or paying late, there can be a penalty of 5% of the taxes due for every month the payment is late with a maximum of 25%.
The late-payment penalty increases the longer an individual refuses to pay taxes, making the debt larger and harder to pay off. Depending on the financial situation, an individual could end up with a mountain of debt that could lead to legal action.
Criminal Tax Evasion Charges
Anyone who fails to file a tax return or fails to pay the taxes due on time can receive charges of criminal tax evasion. This charge is a federal offense and carries the possibility of criminal fines, civil penalties, and potential jail time. It could also seriously damage one’s reputation and financial status.
Furthermore, interest and penalties are applied to both taxes owed and overdue taxes. This increases the total cost due, which could lead to significant financial distress and difficulty.
Contact the IRS
If you have not filed taxes in five years, you must contact the Internal Revenue Service (IRS) right away. The IRS will need any records of income earned in the past five years. They will tell you the next steps you need to take to correct your mistake.
Gather All Your Documents
Gathering all your documents is the first step in resolving five years of unfiled taxes. You’ll need to compile a complete file of financial documents from at least the past five years. This includes the following:
Copy of Your Social Security Card or TIN
When filing taxes five years late, you will need a copy of your social security card or tax identification number. This information will confirm your identity and verify your sources of income for each year that your taxes were late.
This form will outline the wages/salary you have earned during the previous tax year. It includes details such as wages or salaries earned, gross income, withholdings, and deferral earnings. You will need copies of the returns you filed more than five years ago and any other documents from the original filing.
Necessary Tax Forms
When filing taxes five years late, the type of forms you need to complete will depend on the tax year for which you are filing. Remember to always use the most up-to-date forms.
The two main forms you will need to use are the 1040 (U.S. Individual Income Tax Return) and the 1040-ES (Estimated Tax for Individuals). Additionally, depending on your tax situation, you may need supplemental forms such as Schedule A (Itemized Deductions), Schedule C (Profit or Loss from Business), and Schedule K-1 (Partner’s Share of Income, Deductions, Credits, etc.).
Supporting documents that you may need include 1099s. You may also need to use state or local income tax forms and Robinhood, MER, and 529 forms. This will help you to report income associated with stock, ETF, and mutual fund investments.
One of the most important documents you need is your bank statements from the past five years. Bank statements will provide helpful information regarding how much you earned during that time. And it can help the IRS review payments you made which can determine if you are eligible for certain deductions.
Loan statements will document the amount of loan interest or points paid and sales tax paid on a vehicle purchase. It will also document any other payments applied as tax deductions. These deductions will be helpful for the taxpayer to reduce the amount of taxes paid after they have already filed late.
Income records are essential for tax filing and need to include all income sources from the five years. This includes W-2 and 1099 forms from all jobs held, self-employment income records, and income from investments. It may also include Social Security income, pension income, and any other sources of income.
Find a Professional to Help You
It can seem daunting when you learn that you have years of unfiled taxes. Many emotions and stress can arise such as frustration, fear, and anxiety. Don’t despair, help is available.
Finding a professional to help you navigate the process of filing past taxes is important if you want to properly reconcile your taxes. A tax professional can help you to create an organized plan. They can help you prepare missing tax returns, and properly file taxes, and they can even contact the IRS on your behalf.
With the right help, you can start this process and hopefully quickly resolve this issue and be able to move forward. Don’t try to take on this task alone. Finding a professional with experience and knowledge about common problems faced by taxpayers could make all the difference.
Start Filing All Your Late Taxes
If you have five years or more of unfiled taxes, there is no time to waste. You should start filing all your late taxes immediately and get your financial situation back on track.
You can obtain past tax records from the IRS or your state’s Department of Revenue if needed. The penalties for being late in payment may be waived if you have a reasonable cause for not filing.
It is important to understand that ignoring the situation is not an option. Even if you have unfiled taxes from five years ago, the IRS is still able to pursue back taxes owed. This includes filing liens and levies against your assets.
The sooner you start filing your late taxes, the better. This will help you avoid any more future complications.
Understand Your Payment Options
Filing back taxes can be difficult, especially when years have gone by without filing. You must understand payment options before filing, which will depend on income levels, assets, and other factors. Here are your options:
Partial Payment Installment Agreement
A partial payment installment agreement is an ideal solution if you’re unable to pay your taxes five years late right away. This agreement enables you to make regular payments on your taxes, potentially over several years. After completing the agreement, you can rest assured that your tax debt is being paid off gradually over time.
To set up this type of payment plan, simply fill out an online application via the IRS website or contact a local IRS office. Be sure to provide all necessary information and documents requested. This will help you have your agreement set up quickly and effectively.
Offer in Compromise (OIC)
If you have not filed tax returns for five years, you may be eligible for an Offer in Compromise (OIC). An OIC is an agreement between the taxpayer and the IRS to settle the taxpayer’s tax liabilities for less than the full amount owed. The taxpayer can choose one of two payment options when submitting the OIC application.
The first option is a lump-sum payment. If accepted by the IRS, you must pay a lumpsum payment must n five or fewer months. The second option is a periodic payment plan. This plan requires monthly payments over a six to twenty-four-month period and sometimes for as long as five years.
In either case, the taxpayer must still pay all taxes due for the five years not reported. Penalties and interest on the taxes due will accrue while the OIC is getting processed and the taxpayer must still pay those charges. In most cases, the taxpayer must also remain current on all current and future taxes for the OIC to be approved.
The IRS has a program called the Complete Forgiveness Initiative. It allows taxpayers to file and pay their taxes without extra fees or penalties. This program allows you to pay what you owe up to a maximum of five years without being penalized with additional charges.
The Complete Forgiveness Initiative allows you to catch up with your back taxes without having to pay hefty fines. It even allows you to pay your tax debt in manageable installments if you can’t afford to pay the entire amount. When you use this option, interest and penalties still apply.
To apply for the Complete Forgiveness Initiative, simply file your back tax returns as soon as possible. Then indicate that you want to use the program. The IRS will then review the application and determine if you are eligible.
Full payment is always the preferred approach when possible. It eliminates any additional fees or interest charges associated with late payments.
You must make a full payment of the outstanding taxes, fees, interest, and penalties before the due date indicated on the Form 1040-X or your tax return. You may submit payment in the form of a money order, cashier’s check, or personal check made payable to the U.S. Treasury.
Alternatively, you may pay your taxes online or by phone using one of the several payment options. You can use credit or debit cards, or electronic funds transfer.
Choose a Payment Option and Start Paying
Once you have chosen your preferred payment option, then proceed with the payment option you select. Start paying with the IRS through the plan you selected. This is the best move to make to clear your tax debt and avoid any further late fees or penalties.
Remember to never be late in your payments. Communicate to the IRS immediately if you are having problems with paying.
Take Proactive Steps for the Future
Taking steps to make sure that you never miss another tax filing deadline is a must. To ensure that you never miss another tax filing deadline, start by organizing all your tax documents as early as possible.
Make a checklist of all the necessary forms and items you need to have ready for filing. Then create a timeline with hard deadlines for when to have all documents compiled. Be sure to include built-in room for error and incorporate tax filing dates into your calendar so you can stay on top of due dates.
Additionally, it may be beneficial to meet with a certified tax professional. You can also sign up for an online filing program that will auto-schedule filings and remind you of due dates. Following these steps will help you make sure that you never miss another tax filing again.
Follow Our Guide If You Haven’t Filed Taxes in 5 Years
If you haven’t filed taxes in 5 years, it can have a big impact on you financially. It’s best to start taking action now, with the help of an experienced tax professional if needed.
It’s never too late to file taxes, take control of the situation and don’t let it control you. Know that you can get options for relief and back taxes owed. Contact a tax professional today to get started.
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