The first step to paying back taxes is to file any late, unfiled, and delinquent tax returns. However, many taxpayers with unfiled tax returns do not know where to go for help with their unfiled taxes. If you need help with how to file back taxes, contact Austin & Larson Tax Resolution today.
Many tax problems begin with a delinquent tax return. Once an individual or business starts down this treacherous path, it can be very difficult to get their tax situation back under control. Taxpayers can have a delinquent tax return for many reasons, but some of the most common are financial hardship caused by a balance due on the return, life changing event like divorce, or moving/flood/fire which resulted in lost documentation for the return. So, what is a delinquent tax return, what can happen as a result of not filing your tax return, and what should you do next to begin to correct this tax problem?
What Is An Unfiled or Delinquent Tax Return?
A delinquent tax return is a tax return which has not been filed for any reason and is now past the filing deadline for that tax year. One of the most common reasons we have seen for a taxpayer not filing their return is that they know that there is going to be a balance on the return that they are unable to pay. Because they will not be able to pay the balance, the taxpayer decides that they will wait to file the return until they are able to pay the balance.
Other taxpayers have a life event that prevents them from filing. They may have a sick relative or family member or they themselves may be battling an illness. Some taxpayers have lost all of records to a recent natural disaster. Others may have lost their records from years ago for a return that they never got around to filing.
No matter the cause, a delinquent return can cause serious financial issues for you and needs to be addressed. Even if you are missing records and information, we can help you get back on track.
What Can Happen As A Result Of Having An Unfiled Tax Return?
The IRS may file a return on your behalf if you have a delinquent tax return. Usually, they will file a group of years together if you have more than one tax year you are delinquent for. This type of tax return is referred to as a Substitute For Return.
A Substitute For Return is usually not going to be in your favor. The IRS will file this return with no dependents and no expense allowances if you have a small business. They will include all of the income you have on record, but you will not have any of the deductions since they do not know how much you are entitled to. These returns will also be filed as married filing separately if you are married.
This can result in a significant increase in the total tax balance due as a result of not having any of the deductions. For example, a taxpayer sells their primary residence for $200,000 which they would qualify for a deduction as they met all necessary requirements for use and time. If the IRS filed this return, the taxpayer would be taxed on all $200,000 from this sale as the IRS does not take into account any exemptions. Instead of owing no tax for this year, the taxpayer now has a large tax balance to handle with the IRS which is continuing to accrue interest and penalties.
What Should You Do Next If You Have A Delinquent Tax Return?
The result from failing to file a return is almost always going to have a significant effect on your life and could even have a detrimental impact on your business as well as your financial well-being. You should take care of a delinquent tax return as soon as you can, but the optimal method for moving forward should be discussed with a resolution professional.
If the IRS has already filed a return on your behalf your resolution options available may be different than if you file an original in a later year. This is due to the fact that a bankruptcy can’t be filed on a tax year that a substitute for return has been filed on. You will need to look at different resolution options which include an Offer in Compromise, installment agreement, or currently non-collectible status depending on your personal circumstances.
The worst thing you can do if you have a delinquent tax return is to avoid doing anything to rectify the problem. If you let the problem go for multiple years, the IRS will eventually catch-up with you. This will result in a much larger problem than you would have if you start on the path to becoming compliant today.
Common Misconceptions Taxpayers Have About Tax Resolution And UnfiledTax Returns.
Many taxpayers are simply not aware of all of their rights and options to take care of their tax debt in order to remain compliant by IRS standards. Some of the common misconceptions include the following:
• Misconception: I will have to pay my tax debt in full and simply cannot afford to do it so I’m not going to file any tax returns until my financial scenario improves. Answer: This could not be further from the truth as the IRS has an Offer in Compromise program which allows a taxpayer to eliminate their tax debt for less than the total amount owed. The IRS also allows installment agreements and currently non-collectible status for taxpayers that can’t pay the total tax debt in full. Various tax help programs are in place to help almost any taxpayer move toward tax relief.
• Misconception: The IRS hasn’t filed a return for me yet and has not came after me to collect on my current tax debt, so I have nothing to worry about. Answer: The IRS will eventually find and begin to collect on your account. They may take multiple years before this process takes place, but interest and penalty will continue to accrue, substantially increasing your tax burden.
• Misconception: I have a loss from my business every year so I don’t have to file a return. Answer: The IRS has various filing requirements for individuals to determine if they are required to file a return. Simply not having a net profit from your business is not a reason to not file for the year. You should generally always file a return for every year. If you in fact have a loss or you have very low income you may be entitled to a refund. Filing a return also starts the IRS assessment and collection statutes.
There are numerous misconceptions when it comes to delinquent tax returns and a taxpayer’s obligation to file a tax return for every year. If you are missing a return for any year, you should get tax help immediately before you find out you have a much larger tax problem than you thought you had. Austin & Larson Tax Resolution can help you determine which years you need to file and formulate a plan to start you on the path to becoming compliant with the IRS.
Disclaimer: Austin & Larson Tax Resolution has prepared this website for informational purposes only. This website is not intended to provide, and should not be relied on, for tax, legal, or accounting advice. To get advice regarding your specific tax situation or questions, please contact our office at 866-668-2953.