What to Do When You Have Unfiled Tax Returns

In 2020, over 60% of US citizens did not pay any federal income tax, according to CNBC. Tax consultants and accountants highly recommend that you file a tax return for every year you have unfiled returns and pay any unpaid taxes. For those who are not able to pay their tax bill on time or have a late return, there is the option to catch up on any past-due federal tax returns and then apply for IRS back tax relief.

back taxes

Reasons to file your unfiled tax returns

* You will be able to apply for back tax relief if you owe back tax payments. The IRS has several options available, depending on how much you owe and how much help you need.

*Claim a tax refund, but you have to file within 3 years of the date the return was due. Otherwise, you will probably lose the refund, along with any tax breaks you may have been eligible for.

*Prevent identity theft. Identify scams are increasing with tax returns being filed fraudulently. All someone needs is your social security number. They can file claiming an income tax refund, and then have it sent to their address or bank. Filing your federal return early in the filing season helps keep this from happening.

*Don’t lose Social Security benefits. For individuals who don’t receive a W-2 form, when taxes aren’t filed, the Social Security Administration doesn’t receive a report of your income. That reduces the benefits you will be eligible for when you retire.

*Have proof of income for a loan or rental. When signing a loan or rental agreement, a mortgage, student loan, and others, you are required to prove income. Usually, you will be asked to provide a copy of your income tax returns. Not having them can prevent you from acquiring the loan you are applying for.

How to know if you have unfiled returns

If you haven’t filed a tax return for any year in the past, and you’re unsure about it, usually the IRS will send you a CP59 notice saying they don’t have a record of a return from you. If they have received W-2 or 1099 or other tax forms for you, they will use the information they have on hand to prepare a return for you. This will not help you much because you won’t get any deductions or tax credits.

Once this happens, the IRS will start the process of collection for what they think you owe. They have many ways to collect including garnishing wages if you have a job, seizing a bank account, and file liens against any property you may have. Late penalties and interest will also be assessed all the way back to the earliest year taxes were unfiled.

What should you do?

There’s only one answer – file your past-due return. If the IRS filled out a return for you, they will send a notice with that information. From the date that was sent, you will then have 30 days to do the following:

  • File tax return(s)
  • Authorize collection
  • Send the IRS a letter with an explanation of why you did not file your taxes

The best way to avoid getting a notice from the IRS is to file your delinquent returns as quickly as possible. Sometimes the easiest way is to hire an accountant to have them do it for you. They will ensure that you meet all the filing requirements and all information is included. Don’t wait too long. Penalties and interest may already be accruing.

Jeffrey Ressler owns a boutique, full-service accounting firm in Boca Raton, Florida that provides individualized financial services, expert tax preparation, tax planning for individuals and companies, and finding solutions to IRS problems.