Picnic’s Tax Blog

How to File Back Taxes (Past Years’ Tax Returns)

How to File Back Taxes (Past Years’ Tax Returns)
Ryan McInnis
tax due sign

Although it can feel stressful or embarrassing, you’re not alone if you’re sitting on a past-due tax return. Whether life happened and you just forgot to file or if you couldn’t pay your tax and shut down, back taxes happen. The good news is that it’s not too late to remedy the problem. Uncle Sam has a long memory, so it’s important to clear up tax issues so they don’t haunt you indefinitely. There are a lot of good reasons to do so.

Why You Should File Your Past Due Return Soon!

Avoiding penalties and interest is perhaps the most compelling reason to file late tax returns sooner rather than later. When you’re struggling and short on cash, your tax bill may feel so overwhelming that $50 in interest and $500 in interest both feel like equally insurmountable obstacles. Eventually, however, the taxman will come calling and when he does, you’ll want to have yourself in the best position possible. Your tax bill isn’t going away, so act today to keep it as low as you possibly can. We promise you that there is light at the end of the tunnel, so keep that tunnel as short as you can.

You’ll also need to file previous year taxes if you’re due a tax return. This works in two ways. The IRS won’t process your tax refund if you don’t file your taxes. If you were due a tax refund in 2018 but never filed your taxes, you won’t get your 2018 refund until you do. You have three years in which to file your taxes and claim any money you’re due. As the kids are fond of saying, if you snooze, you lose. Wait too long and you’ll forfeit your refund and any tax credits you could have taken.

A missed return in the past can also foul up your refund this year. The IRS pays attention. If you missed filing a return in the past, you’re not getting this year’s tax refund until you either correct the problem or give them a valid reason for skipping out on the missed filing.

For example, let’s say you forgot to file a tax return in 2018. You did file in 2019, at which time you owed tax and promptly paid it. In 2020, you’re due a tax refund. The IRS won’t send you that refund until you deal with your missing 2018 tax return — even if you don’t owe any tax n it.

If you’re self-employed, it’s important to file your taxes every year now so you can protect your social security benefits later. The IRS reports your self-employment income to the Social Security Administration (SSA) when you file your income taxes. The SSA then uses your lifetime earnings to calculate your Social Security income when you retire or become disabled. If you don’t file a tax return, you won’t get credit for all of your earnings. This could reduce the benefits you receive, perhaps significantly. 

What Happens if You Don’t File?

If you’re tempted to just let a missed tax return slide, you should know that doing so can cause a host of issues. Although potentially significant, the most minor issue a missed filing can cause is trouble getting a loan. Getting a mortgage, refinancing your home, obtaining a business loan or requesting student financial aid all require you to submit a copy of your filed tax return. You won’t get far if you don’t have one.

Possibly more problematic is the possibility of a substitute return. If you don’t file a return on your own, the IRS may gather the tax information they have and prepare one for you. Simply letting the IRS do the work for you may sound like an easy solution, but they may not be aware of or overly concerned about any deductions or credits you could take. They’ll simply prepare a basic return and send you a copy. If you don’t take any action in 90 days, that return and any tax you owe on it becomes binding.

Once the IRS files a return for you, you’ll need to pay any tax due. If you don’t, the IRS will take collection action. This may include taking extra payments from your paycheck or filing a federal tax lien against you. Note that if you fail to file your taxes several times, the IRS may take criminal action against you as well as collection action.

What If I Can’t Pay?

An unexpected tax bill can pose a very real financial problem, and sometimes frightened or frustrated taxpayers fail to file a tax return if they know they can’t pay the tax due. Unfortunately, this is never the best solution to tax problems. Even if you owe tax you can’t pay, your first step is to make sure you file your past due return if you haven’t already. You can then contact the IRS to apply for a payment plan.

Payment Plans

If you owe a combined amount of tax, interest and penalties of no more than $100,000, you may be eligible for a short-term payment plan. These plans give you 180 days to pay off your tax debt via credit card, debit card, check, money order or automatic checking account withdrawals. You can apply for a short-term payment plan online, over the phone, through the mail or in person at no charge.

If your tax debt plus interest and fees is less than $50,000, you may apply for a long-term payment plan. These plans give taxpayers 120 days or longer to pay their tax debt. There is an application fee for long-term payment plans, and the fee structure is a bit complicated. If you plan to make your payments via automatic withdrawals from your bank account, the application fee for a long-term payment plan is $31 if you apply online. The fee increases to $107 if you apply via telephone, mail or in person.

If you plan on using any payment method other than automatic bank account withdrawal, the fee to apply for a long-term payment plan is $149 if you apply online and $225 to use any other application method. Low-income filers may be able to have their fee reduced to $43, and some may qualify for fee reimbursement.

If you’re considering a payment plan, know that you’ll be required to make payment via an automatic bank account withdrawal if you owe $25,000 or more. Be aware also that penalties and interest on your back taxes do not stop when your payment plan starts. These fees will continue to accrue until your balance due is zero.

An Offer in Compromise

Sometimes taxpayers are able to settle their tax debt to the IRS for less than what they owe. This is called an offer in compromise. If you simply can’t afford to pay your taxes, the IRS may consider this option based on the amount of your debt, your income and expenses, and how many assets you own.

There are some important things you must know about an offer in compromise. First, there is a non-refundable $205 fee to apply. Low-income taxpayers can sometimes have this fee waived. You’ll also have to send in an initial payment with your application to show good faith. The offer in compromise option isn’t available to serial non-filers. If you haven’t filed a tax return in a while, you won’t be eligible for a deal. Those with an open bankruptcy case are also ineligible. 

If you remember nothing else about an offer in compromise, please remember to approach them carefully. When you see tv commercials for companies offering tax relief, know that all they do is help you file the paperwork for an offer in compromise. Some of these companies are legitimate, but many are scams — and none can truly settle your debt for “pennies on the dollar,” as is often promised.

If you need help filing for an offer in compromise, please contact us at Picnic Tax or contact another reputable CPA. The IRS accepts less than 50% of the offer in compromise applications they receive, and we hate to see taxpayers charged fees by unscrupulous companies to file for tax deals they have no chance of getting.

Non-Collectible Status

If you’re finding it impossible to make ends meet before attempting to pay your tax debt, you may ask the IRS to place you in non-collectible status. If they agree, debt collection attempts against you will stop. Note, however, that this status is temporary and the IRS will review your situation annually. When your finances improve, tax debt collection will resume. Tax levies can be filed against you even when you are considered currently non-collectible.

How to File Back Taxes?

Congratulations on your decision to file previous year taxes and bring your IRS account current. You’ve made a good choice. Now that you’ve elected to fix your tax situation, we’re happy to help you figure out how to do it. 

The first step is to gather all of your relevant tax documents as you normally would. If you’re missing some old W-2s and other important forms, you can request a copy of them from the IRS. They will have copies of your tax records for the last 10 years. To get what you need, fill out and file a Form 4506-T. The IRS often takes up to 45 days to field these requests, so give it some time.

Once you have all of your relevant tax data, you’ll need to hit the IRS website and print a copy of the correct tax form for the year you’re filing. If you’re filing taxes for 2016, you need to do so on Form 1040 from 2016. You’ll also want to make sure you get the proper directions for the tax year you are filing. You will file your taxes just as you would have originally, using the tax laws that were in effect at the time. You may be able to use tax preparation software instead of paper forms, but it depends how far back your software provider can go.

When completed, you will submit your forms to the mailing address indicated in the IRS directions as usual. If you owe taxes but lack the money to pay them, submit your return anyway and pay as much as you can to help keep interest and penalties down. After processing your return, the IRS will send you a notice outlining any tax, interest and penalties due.

How Many Years Can You File Back Taxes For?

If the IRS owes you a refund, you have 3 years to file a return and claim your money. Otherwise, the IRS will let you go back as far as 6 years to file missing returns. You can go back further if necessary, but doing so requires approval from an IRS manager.

Note that although the IRS generally doesn’t go back further than 3 to 6 years, skipping a tax filing and waiting for it to get old enough to go away isn’t a viable solution to tax problems. The IRS doesn’t make it a point to go back more than a few years, but they can go back as far as they like if they suspect fraud. 

Taking care of old tax problems is a smart move, but it can be a complicated one. Getting all the old forms and instructions right can be tricky, as can determining the best payment plan for your situation, if applicable.

The professionals at Picnic Tax are ready and able to help you navigate the rules for dealing with back taxes and a past due return. We’ll help you complete your return, file it and devise a way to work out payments with the IRS if necessary.

The task at hand may seem daunting, but with a little patience and help from us, you can get back on track and stop worrying about your overdue taxes or returns. Sign up today and get help from knowledgeable professionals who will help you without judging your past tax mistakes.