The only things that are certain in life are death and taxes. Unfortunately, you can’t outrun either. No matter how long you avoid paying your taxes, the IRS will eventually catch up with you. So, if you owe back taxes, filing your returns is probably the quickest way out of hot water. Even if you can’t pay your debt, it enacts the statutes of limitations for how far back they can collect. For those facing significant debt, you may be wondering how many years can you file back taxes. Here’s what you need to know about filing past tax returns and getting out from under your tax debt.
What Are Back Taxes?
Even if you do not report your earned income during the missing years, the agency will still receive your information from your employers and financial institutions that must report them. If they discover that you owe back taxes, the IRS will notify you with information on how to make a payment.
Back taxes include any taxes that are either partially or entirely unpaid for the year they were due. Those who failed to file past tax returns or report all their earnings may find they owe back taxes to the federal, state, and local governments for the years in question. And, the longer they go unpaid, the more penalties and interest you will accrue. The IRS charges a failure to file penalty of 0.5% of the amount due. The penalty applies every month until the amount reaches 25% of the total or you pay the debt. Furthermore, the IRS also charges a 4% interest rate. This can drastically increase your tax debt the longer you ignore it.
How Many Years Can You File Back Taxes?
There is no statute of limitations on how long you have to file any returns that are past due. Generally speaking though, you must file the last 6 years of tax returns to be in good standing with the IRS. However, the IRS will never decline a return if you want to send them for previous years.
If you owe money, the IRS will attempt to collect several times before taking legal action. But after 6 years, it can seize property and assets. This includes garnishing wages, placing a federal tax lien, or enacting a tax levy to collect what you owe.
The statute of limitations for the IRS to collect taxes is 10 years following an official assessment. But, it only applies to your last filed tax returns. So, there is no time limit for the IRS to pursue taxes if you never file a return. And, collection periods can be suspended for several reasons, extending this time period even further.
How Many Years Can You Claim a Refund?
Besides avoiding additional costs, it is also a good idea to file your tax return every year so you can claim your refund. The time frame to claim any refunds is much shorter than paying back taxes. You only have 3 years to claim your refunds. Otherwise, you lose any money owed to you beyond this point.
How Do You Pay Back Taxes?
If the IRS knows that you have earned income and have failed to file a return, they will intercede eventually. When they will send you a Notice of Deficiency CP3219N, you then have 90 days to complete your return or file a petition. However, the IRS will file a substitute tax return to report your income for those who wait too long. This is usually not in your best interest because it will not include any deductions or credits you may qualify for. Since it is only a rudimentary return, you will likely end up paying more in taxes than necessary.
Filing Your Past Returns
Unfortunately, you can’t file back taxes electronically. You must file these returns on paper and physically mail them. You should include all relative documents including W2s, 1009s, receipts and bank statements, and Form 1040 for the corresponding year. If you are filing several years’ returns, use separate envelopes to avoid any confusion or clerical errors. And, send your returns through certified mail for proof that the IRS has received each of your returns.
It’s possible to use tax software to prepare your return, but you will need to print them off and then send them. Make sure you choose the software for the correct year that you are filing because settings change and must comply. It will take about 6 weeks for the IRS to process and complete your returns.
Making Payments
If you have the funds, paying your back taxes is the easiest part. First, any money owed to you is usually applied to the debt. Then you can use the Direct Pay website to make an electronic payment online for the remaining amount.
However, if your outstanding debt is more than you can afford, the IRS will work with you. You can set up an installment agreement that allows you 72 months to pay if you owe less than $50k. You can request it online for a fee. And, requests under $10k are usually auto-approved. Short-term payment plans require no fees if you can pay your debt off within 6 months. However, you can file for an installment agreement with Form 9465 for any amount.
The IRS may accept an offer in compromise if you can’t pay in full. This means you reach an agreement with the IRS to settle for less than you owe. But, it’s a more complex process that usually requires legal representation.
How Do You Find Out If I Owe Back Taxes?
You won’t have to wait long if you owe back taxes. The IRS will notify you by phone, letter, or in person. However, you can also check your status online.
The best way to avoid owing back taxes is to make sure you file your return every year. If you feel in over your head, you can also consult a tax professional to help you prepare your return. Find a CPA or tax expert who has experience filing back taxes and dealing with the IRS. This will make it easier to file, negotiate, and advocate on your behalf. Getting help can unburden you from tax debt and regain control of your finances.
Finally, if you want to get ahold of your tax situation usually hiring a professional isn’t a bad idea. Personal tax services can cost less than a couple of thousand dollars and are often worth in terms of reduced penalties and interest.
Read More
- Don’t Forget to Do These 5 Things Before Submitting Your Taxes
- Should You Be Paying To File Your Taxes
- Filing Taxes Late? Here Are Some Excuses That Actually Work With the IRS
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Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.
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