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Filing Back Taxes: How to File and What to Know

With the IRS and back taxes, one good fact is that the IRS has an unwritten policy about not prosecuting people that voluntarily file back taxes. However, things are different if the IRS finds you first; they can punish individuals up to 1 year in prison and $10k for every missed year. You probably will not go to prison because the US doesn't have enough prisons for all non-filers, but be assured that they will impose much harsher penalties if they find you before you voluntarily file your taxes. Understand why and how you can file your unpaid IRS taxes below. Taxes can be prepared from decades ago with proper documentation.

Why You Must File Back Taxes, Even If Late?

Penalties and Interest will grow significantly and increase the total tax amount you owe the IRS. If you do not file, the IRS may complete a "Substitute for Return," which is not optimal as it is one tax return for all years. No federal exemptions or expenses will be applied and therefore increase your total tax liability.

If the tax is assessed and the IRS completes a substitute return for you, they will begin collecting. This means they can place a tax levy on wages or bank accounts, or a federal tax lien on your personal property. The IRS will eventually find you. They have a complex computerized system that works slowly, but efficiently.

Even if the IRS has completed a Substitute for Return for you, it is in your best interest to file your back taxes because generally they will adjust your balance. Realize that you cannot receive a car loan or mortgage without tax returns if there is a balance owed to the IRS. Social Security and other benefits can be removed as well. The consequences of filing voluntarily and not being able to pay are much less than if the IRS finds you first. Even if you file voluntarily and late and cannot pay, you may be able to negotiate a settlement with the IRS for less than the amount owed. Lastly, piece of mind that you no longer have to hide and will be considered in good standing with the IRS, even if you cannot pay the amount owed, is a reason to file.

How to File Back Taxes

Gather Necessary Information : Find old documents needed to file old returns. Particularly old W-2s, and 1099 tax documents. If you cannot find the docs, you can ask your old company for them or contact the IRS at 1-866-681-4271. If they do not have the information, you can call the IRS and request income data for missing years. It is likely that the IRS will have this information because all companies are required to report this information to the IRS. If they do not have it, you can use Form 4852, which is a substitute W-2 that estimates what your W-2 would have been for those given years.

Prepare the tax forms. You will need to use the specific years tax return form for each year you missed. Generally, the IRS will require you at least file your last six years of tax returns (including the current year), but they may request a tax return that is older than six years. You can find these tax forms on the IRS website or any tax resolution firm likely has them. Be sure to claim deductions, exemptions, and credits to reduce your total tax liabilities. You can also go into an IRS office and get them. Even with sufficient knowledge, due to the complexity of the code, it is best to have a tax pro prepare them if you expect to have a tax amount that you cannot pay when the return is filed.

Contact the Right Tax Firm: It is a good idea to use a tax specialist like at Tax Attorney or Tax Certified Public Accountant that can file back taxes AND setup a resolution with the IRS. A total back taxes trusted firm will file your back taxes and help you find any settlement methods that are appropriate. If want to file them on your own, the easiest form of resolution is to send in a request for an Installment Agreement with the tax return. This will allow you to pay back the taxes owed in monthly installments. This type of agreement is the easiest to get accepted but there are many IRS tax settlement method you can pursue as well.

File your back taxes and other paperwork. If you received notice from the IRS to file the back taxes, send to the address listed on there, or send to the normal address you send your tax returns (IRS Addresses for Filing). Once you have your returns filed, you can next work with your tax professional to try to settle or reduce the total amount you owe. In most cases, you will need to come to an agreement with the IRS in regards to a tax payment plan or tax repayment methodology.

Advice for Success With Filing Taxes

Use a tax professional that can file AND reduce your back taxes. You will likely end up saving more money by using a tax professional than if you attempted to do everything on your own since they are experts and have handled many situations similar to yours. This is especially important if you do not have enough money to pay the taxes owed. The IRS always tries to make individuals feel that they must pay at all costs when this is not the case at all and you can find a settlement method that is right for you.

If you would like a professional tax team on your side to help you file and resolve back taxes, or you would like a complimentary consultation to understand what is involved with the process, request a free quote today above.