Each year, most Americans file their taxes ahead of the April 15 deadline – but not all of them.
Every single year the IRS reports that millions of Americans simply don’t file their taxes at all, even when they have earned income that the IRS would consider taxable. There are a variety of different reasons the IRS has found that people skip out on their taxes (changes to filing status, emotional stress, financial reasons, etc.), too.
At the end of the day, though, not filing taxes can make tax time even more stressful than it already is.
Thankfully, though, the IRS is (generally) willing to work with those that make every attempt to rectify their situation through back tax payment services.
Here’s how to navigate this situation!
Breaking Down the “Six Year Rule”
Regardless of whether a person hasn’t filed their taxes in 10, 15, 20 years (or even longer), the IRS likes to see at least the last six years’ worth of tax returns filed for an American taxpayer.
As soon as those six years are in the individual is considered “compliant” and can move forward from that point on as though they were completely current.
Therefore a lot of tax preparation professionals focus on just the past six years of tax filings, at least at first.
Taking Care of Back Taxes
The actual process of resolving unfiled back tax returns is generally simple and straightforward.
It begins with collecting documentation regarding income and expenses and then going through the filing process just like any other year – though obviously this time multiple years will be filed at once.
Start By Getting Your Records Together
Record collection is incredibly important when filing back taxes.
The IRS keeps strict records of everyone that should be filing taxes and likely has a detailed breakdown of all the income each American taxpayer made on annual basis.
W-2s, 1099s, Etc.
Start by gathering income records, including W-2s, 1099s, and even just bank statements that highlight how much money was brought in during each unfiled calendar year.
When detailed records cannot be collected (especially older records), individuals can file a “gross return” with the IRS. This essentially makes a good faith effort to “guess” how much money was made in a single year, not counting any deductions or expenses.
Yearly IRS Forms
After that, tax preparation professionals will collect all the yearly IRS forms and year specific rules for each unfiled year.
Taxes (generally) don’t change much from one year to the next, but the potential for different types of legislation to change how taxes need to be filed always exists. Taxes must be filed according to the rules and laws that were in place at the time, not the way that they exist right now.
Expenses Documentation
Lastly, documentation that backs up and verifies any expenses that are being claimed need to be produced as well.
Filing Back Taxes
The last piece of the puzzle is moving through the filing process. Proper tax professionals can streamline this process significantly.
Not only can these professionals speed the unfiled back taxes process up quite a bit, but they are also usually able to better negotiate with the IRS on behalf of their clients. This often results in significantly reduced financial penalties (if any) for filing back taxes, one of the biggest advantages of using professional back tax payment services in the first place!
Customized Real Estate Tax Accounting
We’d love to sit down and talk about your tax situation and how you can protect as much of your income as possible – legally, ethically, and responsibly.
If you’d like personalized help for navigating the often confusing tax situation post-coronavirus, please don’t hesitate to contact Robert Hall & Associates at your earliest convenience via the webform here, by phone at 818-452-2641 or reach me directly via email at [email protected].
References
https://www.irs.gov/businesses/small-businesses-self-employed/filing-past-due-tax-returns
https://www.irs.gov/newsroom/help-yourself-by-filing-past-due-tax-returns
https://www.hrblock.com/tax-center/irs/audits-and-tax-notices/unfiled-tax-return/
https://www.nerdwallet.com/article/taxes/tax-relief-back-taxes
https://www.myirstaxrelief.com/back-tax-payment-services-unfiled-back-tax-returns.html