As most taxpayers are required to file a tax return every year and technically the Internal Revenue Service (IRS) does not impose a statute of limitations on how long you have to file past-due tax returns, filing your tax returns is the quickest and easiest way out of any back tax issues.
Why it is important to file back taxes and most importantly, how to file returns for back taxes?
Are you wondering whether you should file back taxes or whether is it too late for this? Let’s make it clear, it’s never too late to file your back taxes. In fact, you should start taking steps right away to file an accurate tax return for any years missed.
Here we will explain why it is essential to file returns for the previous years as soon as you can and what is the complete procedure to do so.
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Reasons why you should file back taxes
When you file tax returns for previous years, you get one of the following benefits:
You can claim a refund
One of the most important reasons why it is essential to file a back tax return is so that you can get a refund of overpayments or applicable tax credits. In many occasions, if you are an employee, income taxes are deducted from your salary prior to the filing day and in several scenarios you might have paid more than the amount you owe, resting in a refund due to you. In such a case, when you file your tax return, the extra amount is returned to via direct deposit or check as a tax refund.
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Avoid late filing penalties and interest
Another obvious reason why you should file late taxes is that that this way you can avoid or minimize the late filing penalties that you may get by not filing the tax return at all. In such scenario there are several things that you can do. We will discuss them later on this article.
Have tax return documents for loan applications
Generally, loan companies such as mortgages or business loans need several income documents including the tax return documents to carry out the loan approval procedure. So it is advisable to file a tax return even if you’ve missed the due date so that the process of the loan application goes smoothly without any delays.
What should I do if I cannot afford to pay back taxes?
In case you are unable to pay your tax liabilities, the IRS will give you several options that can help you do so. An installment agreement can provide you up to 72 months to pay. Your request should most likely be automatically approved if you owe less than $10,000. You can also file IRS Form 9465, the Installment Agreement Request, with your tax return, regardless of how much you owe. You may also request An Offer in Compromise where you reach an agreement with the IRS to pay less than your full balance due.
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How to File Returns for Back Taxes
Finally, let’s take a look at the complete procedure for filing late taxes. To your surprise filing returns for back taxes is not as hard as it may look. The following steps are involved in filing late taxes.
Collect all documents and information
First and foremost, you need to gather all the income documents and other information from the year you want to file a return for back taxes. Collect all documents related to the income, deductions and credit.
Request IRS to give you the tax documents
There is a good chance that you may face issues in finding the tax documents of the previous years. To help you with this, IRS can help you with the tax information they have about you for the year you want to file the taxes. To ask IRS for the information, you need to fill out Form 4506-T. This way you can request a copy of your Income-tax return for the previous year even if you skipped filing the tax return. IRS can provide you with the information for up to the previous ten years. IRS will send your details on W-2s, 1099s, and 1098s forms but cannot help you with the deductions and credits so you need to help yourself with that.
File returns for back taxes
After collecting all your tax documents, look for someone with significant experience in preparing back taxes if you decide to use the services of a professional or obtain all filing forms from the IRS website. You can always contact PASFIRM if you need any help regarding filing returns for previous years.
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