The only thing worse than filing taxes is filing back taxes. Back taxes are taxes that you owe from not filing in previous years. Instead of avoiding the problem, it's best to handle it as soon as possible. Luckily, filing back taxes is just like filing your regular taxes, only you'll need to make sure you're using the proper year's form.
The consequences of not filing your taxes include late penalties, forfeiting your refund and even arrest. Taxes are not something you should mess with and it's always better to file late than never. For each month that you're late, the IRS will charge you 5 percent in interest, up to a maximum of 25 percent. The government has 10 years to collect their money, meaning this issue should be resolved now instead of crossing your fingers and hoping it goes away.
Gather the Right Paperwork
You'll need the correct year's tax forms plus all of your W-2s, 1099s, write-offs, deductions and any other relevant information for the year you're filing in. If you don't have that information, you can contact the IRS and fill out a Request for Transcript of Tax Return. This can take up to 45 days before you receive a transcript of your documents.
File Your Back Taxes
Once you have all of your paperwork and the correct forms in hand, it's time to file. Filing back taxes online rather than on paper is usually easier if you're doing your taxes by yourself. You can use tax software such as TurboTax to walk you through the previous years' taxes. If you're not comfortable filing online or filling out the forms and mailing them in, enlist the help of a tax professional. Tax professionals and accountants can provide you help with back taxes, making the entire process easier and less stressful for you.
File State Back Taxes
Most likely, you will need to file back taxes for the state you reside in, too. Though the consequences of not paying your state taxes aren't as severe as not paying federal taxes, it's always best to take care of the entire situation rather than just one part of it. For state taxes, you'll need to gather the right paperwork and contact your state's Department of State website to get the correct forms from the year you didn't file. You can look up the address to file your state taxes by using the IRS state map on where to file.
Set Up a Payment Plan
If you owe the IRS money from a previous year, you're going to need to pay them in full immediately or set up a payment plan. Ideally, you should send in a small payment when you file and request to speak to someone regarding the specifics of the plan. Since you will be paying interest on what you owe, it's best to try and pay off your debt as soon as possible.
Tip: Always ask the IRS if they can remove some of the penalty fees or even reduce the amount you owe. This is known as an Offer in Compromise, and while it's unlikely it will be approved, it's worth looking into if you cannot afford to pay your back taxes.
If you owe the government money, the worst thing you can do is ignore the problem. Get help with back taxes and file as soon as possible to avoid even more penalties and fees.