Filing Back Taxes And When it Makes Sense to Get a Professional

Many people dread April 15, or at least they dread having to file their tax returns. Some people (probably more than would like to admit it) don’t actually ever file those returns. Maybe they file an extension, then forget to file the return. Maybe they didn’t think they needed to file. Maybe the dog ate it. Most people just don’t want to deal with it. And these procrastinators will get together to talk about this…eventually. But, the IRS may actually decide to “help” those folks out and file a return for them. If you are one of these folks, there is light at the end of the tunnel. But first, you are going to have to start by getting compliant. “Compliant” (in IRS speak) means generally that you have filed your last 6-7 years of returns or were not required to file them AND you have taken at least some steps necessary to not owe in future tax periods.

Photo by turtlemom4bacon

If the IRS has “helped” you file, it is called a Substitute for Return, and it is prepared without the exemptions or deductions you may have qualified to use during that year. This could mean big balances owed for some folks, and no significant change for others- it all depends on what you would otherwise be able to claim or write-off on that tax return.

While there is a late filing penalty and interest for any return showing a balance due, there is no tangible or criminal penalty for not timely filing a return showing a refund or $0 due to the IRS. Of course, if you wait more than about 3 years before filing the return, the IRS does get to keep your refund, but that can still be much better than owing the IRS based on the Substitute for Return. Filing late taxes is, at least most often, better than not filing at all.

If the IRS has already filed a Substitute for Return for you, you can (and probably should) consider replacing that return. You can do it yourself or hire someone to prepare it for you. Prior year forms and instructions are available at www.irs.gov. Use the search box to get just the forms and year or years you need (form 1040 is the most common, though you may get to use the 1040A or 1040EZ if you do not have a complex tax situation). And not having the old W2s from your employer isn’t an excuse to let the IRS file for you. A tax preparer or tax professional can help you determine what you need and help you request that information from the IRS. If you are self-employed, it is trickier – you will have to provide your own records for expenses, but the IRS still may have 1099 income information for you. And student loan interest. And mortgage interest paid. Which can all mean a big difference in the tax bill.

Like many things in government, filing a late return, especially if it is to replace a Substitute for Return, is a slow process. You probably know this if you have ever tried calling the IRS. We are talking up to 6-8 months when the IRS isn’t already overtaxed (pun intended) with the current year returns. If you owe other balances, or are waiting for the replacement returns to process through the IRS system, you should still do what you can to protect yourself from collection actions, such as wage or bank levies.

Filing your late taxes or missing tax returns can be stressful, but it can also be a whole lot less stressful than finding out the IRS has a giant bill waiting for you. If you need help with preparing taxes, getting compliant, or in understanding what you need to do- find a professional. There are those of us out there who LIKE taxes and all things related. Hey- don’t knock it. When I need a plumber, I hire one. And I hope that when you need a tax professional, you hire one, too.