I have not done my taxes in five years. Where do I start?
Almost everyone goes through it at some point. Something happens in your life that makes you lose control of things, and one of those things is filing your income tax returns. Sometimes it’s because someone in their family has died, leaving them sad and depressed. Because of this, they can’t deal with doing their tax returns when they’re due. Sometimes it’s because they’re having money problems and are afraid to file their tax returns because they might not be able to pay any unpaid taxes.
Faris Khatib, the CEO of Ideal Tax says “People don’t file their taxes for many different reasons, but they all have in common that they don’t want to deal with taxes for more than one year at a time.”
Once you stop filing your tax return for one year, it always snowballs because you tell yourself, “I’ll do this year’s return when I’m done with last year’s.” You end up not filing more tax returns, and before you know it, it’s been a few years since you last did so. You may be putting IRS notices about unfiled tax returns in a stack of unread mail because you don’t have the time or energy to deal with them right now.
First, get all of your tax papers together.
You should be able to locate the documents you need to submit an accurate return for the current year more quickly. After all, your boss probably sent you your W-2s, and you may still have other papers in that mail, like the amount of interest and dividends you made on your investments and the amount of loan interest you paid on your home. With most tax forms available online, it’s often easy to find out about things like mortgage interest, property taxes, and charitable donations. Most online document systems keep tax records for at least two or three years.
Overview of essential IRS filing rules
You only have to file a tax return if you meet specific requirements in a given tax year. For example, most people have to file when their income is above the standard deduction, also called the income filing threshold. For the tax year of 2022, these were the amounts:
– $12,950 for single or married taxpayers, filing separate returns.
– $19,400 for people who file as head of household.
– $25,900 for married taxpayers and filing their taxes together or qualifying widow(er)s.
You should get a tax refund because you had taxes taken out of your paycheck or paid estimated taxes. If you paid more in taxes than you owe, you should file a tax return to get your money back. Taxpayers can do this by directly making estimated payments to the government or by having taxes taken out of their paychecks.
Don’t pay your taxes?
If you don’t file your tax returns on time, you may have to pay extra fees and interest from when your taxes were due. Not filing or paying taxes could also be a crime. The IRS says there are several ways to break the law regarding avoiding paying taxes. If you end up owing back taxes, consider looking into the IRS Forgiveness Program which can help bring your taxes down to a significant amount.
I am not thinking about the consequences.
If your tax return is even one day late, you could have to pay penalties for failure-to-file (FTF) and failure-to-pay (FTP). The Failure to Pay penalty is 0.5% of the taxes owed, while the FTF penalty is 5% of the month-to-month tax debt. But there are ways to avoid or lessen these consequences.
You can put off having to pay the FTF penalty by asking for a six-month filing extension. With the extension, you will have until about October 15 to send your tax return. After that, if you still haven’t filed, the IRS will add the FTF penalty to your tax debt.
Even if you ask for more time, you’ll still have to pay the FTP penalty if you haven’t spent at least 90% of your yearly taxes. You can try to estimate this amount and send the IRS some money when you send in your filing extension to reduce the FTP penalty.
In a nutshell
If you didn’t file tax returns for a few years, you should look into the situation and see what you can do. This may save you a significant sum of money in fees and interest if you do it. In rare cases, it could keep people from going to jail. On the bright side, if you get your money back, you also might earn a few dollars out of the process. In 2019, the IRS said that $1.4 billion in refunds had not been claimed. So don’t wait too long to get the money the IRS owes you.