Paying taxes is a responsibility for citizens, and taxpayers should be aware of possible consequences of not filing. Despite this, many people go as long as ten years without filing their taxes, often without calculating the penalties and interest the IRS may impose on unfiled returns.
Are you wondering, “I haven’t filed taxes in 10 years. What do I do?” Then, you’re in the right place. This simplified guide will help you decide what to do.
Why Don’t People File Their Taxes?
Procrastination: Many taxpayers may believe they have more time than they actually do, or they might start the process only to miss the deadline by not completing it.
Lack of knowledge: Some taxpayers don’t have a grasp of tax laws. It may seem complicated.
Financial hardship: People in financial hardship may not have the funds to pay for professional tax advice.
Personal problems: Illness, family emergencies, or other life events may take precedence, and tax preparation may fall to the bottom of the to-do list.
After a few years, they don’t know where to start: Sometimes, taxpayers may feel overwhelmed and unsure of where to start, especially if they’ve missed filing for multiple years.
Poor recordkeeping or no recordkeeping at all: Poor recordkeeping can make it difficult to complete tax returns correctly.
Consequences of Not Filing Taxes
The IRS charges a 5% monthly penalty for late tax returns under the Failure to File Penalty, which can accumulate up to 25% of your unpaid taxes. If taxes are owed and remain unpaid, an additional Failure to Pay Penalty of 0.5% of the unpaid amount is added each month, up to a maximum of 25% of the unpaid amount. Interest on unpaid taxes and accrued penalties is also applied daily.
Many people worry about jail time for not filing but, under the 7201 Code, legal prosecution, including potential jail time, is generally reserved for cases involving deliberate tax evasion, where taxpayers knowingly and willfully avoid paying taxes. For most cases of non-filers, the IRS pursues financial penalties rather than criminal charges.
If you haven’t filed taxes in 2 years:
Even a two-year delay in filing can significantly increase the total amount owed. Although initial penalties may seem manageable, they can add up quickly, reaching up to 25% of your unpaid tax liability if left unaddressed.
If you haven’t filed taxes in 3 years:
Taxpayers who are due a refund want to file as quickly as possible because the IRS only allows you to claim a refund within a three-year window. After three years, any unclaimed refunds are permanently forfeited. For taxpayers who owe taxes, penalties, and interest continue to accrue, adding to your overall tax debt and making it increasingly costly to resolve.
If you haven’t filed taxes in 5 years:
You’re at a higher risk. The IRS may After five years, the IRS may file a Substitute for Return (SFR) on your behalf if no tax return is filed. An SFR typically results in a higher tax liability because it includes only basic deductions, such as the standard deduction, and may exclude specific credits or itemized deductions that could reduce tax liability. Following the SFR, the IRS may initiate collection actions, such as wage garnishments, bank levies, property liens, or, in extreme cases, asset seizures.
If you haven’t filed taxes in 10 years:
By this point, the IRS may have prepared substitute for returns, assigned a taxpayer’s case to a Revenue Officer or even taken legal action In cases of willful evasion, additional penalties and/or, in rare cases, jail time may apply.
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What Happens If You Don’t File Taxes for Your Business?
Why should you file your taxes? Whether you’re an individual or a business, you must report all taxable income and pay taxes according to the Internal Revenue Code. Filing taxes is important not only for paying your tax debt, but also for obtaining any refunds and claiming deductions. This approach helps reduce your overall tax burden and prevents further debt accumulation by avoiding penalties and interest.
Of course, the consequences are different for each company. However, some general implications are:
- Fines and interest
- Loss of deductions and credits
- General tax liens
- Substitute for Return (SFR)
- Revocation of corporate status
Negotiate the Tax Bill
Unpaid taxes can lead to accumulating penalties, and in extreme cases, prosecution, but there is always an opportunity to negotiate with the IRS. There are multiple options available to resolve the tax bill. You can talk to the IRS about an installment plan; even if it is a partial payment, it can help reduce interest that is accruing. Submitting an Offer in Compromise can allow you to demonstrate financial hardships that may qualify you for debt reduction. Working with a tax professional can help make this process smoother and reduce the chances of errors.
How to File Back Taxes in 5 Steps
Are you worrying and asking yourself, “How do I deal with the IRS for back taxes?” Don’t panic, just keep reading.
Gather Necessary Documents
Foremost, collect all relevant documentation for each tax year.
- W-2s or 1099s for income received.
- Bank statements, receipts, and invoices for deductible expenses.
- Records of tax credits or deductions for which you’re eligible.
- Any real estate, mortgage statements, and property tax documents.
- Statements of investment accounts, including capital gains and losses.
Prepare Your Tax Returns
Use the information that you have gathered to determine what your taxes should be. Carefully fill out and complete your tax return(s), including every source of income, and claim every available deduction.
- If you’re filling by hand, printable prior-year tax return forms are available.
- You can use tax preparation software to file back taxes.
- Get help with tax returns from a tax professional.
If you’re new to filing back taxes, it’s okay. Determine which tax years you need to file, as the IRS typically requires returns for the past six years. If this process seems overwhelming, consider getting help from our team by requesting a free initial consultation.
Sign and Submit Your Return
If you completed your tax return using online tax software, print the finished return and mail it to the address specified in that year’s instructions. The most recent year’s return may be eligible to e-file, but delinquent returns will need to be mailed. When mailing returns, it is important that each return is mailed separately.
What is a deficiency assessment?
After a tax return is filed, the IRS may review it and find discrepancies. A deficiency is the difference between the tax amount reported by taxpayers and what the IRS determines is actually owed. The IRS notifies taxpayers of this deficiency through a deficiency letter.
Consider Professional Help
Filing back taxes can be daunting, but a qualified tax professional can assist you in several ways:
- Navigate through the tax return process.
- Track down tax deductions and credits you may have missed.
- Negotiate with the IRS to minimize penalties and interest.
- Establish a payment plan or settlement offer, if necessary.
Address Any Outstanding Tax Debts
The IRS offers various solutions for taxpayers:
- Paying the full amount owed, if possible.
- Paying the debt in monthly installments.
- Asking for a settlement offer to pay the debt for less than the full amount owed.
- Sentence reduction or other relief programs.
Conclusion
Each passing year increases the penalties, compounding the total owed. However, with a well-planned approach, these penalties can be minimized. Consulting with an expert can make navigating tax laws more manageable and help reduce high tax penalties.
Frequently Asked Questions
The IRS has a 10-year statute of limitations on federal tax debt, starting from the date of the tax assessment, not from when you filed your tax return.
The IRS can charge penalties and interest. They may file a Substitute for Return (SFR) and start collection actions like wage garnishment or bank levies.
Legally, you have up to three years to file taxes.
You should contact the IRS to make arrangements. The IRS offers payment options to help you.
There are four ways to inform your address changes. First, you can fill out Form 8822 or Form 8822-B. Second, you can use your new address when you file. Third, you can send a signed written statement. And the last, you can tell them in person or by telephone.
Call 800-829-1954 or 800-829-1040 to initiate a refund trace. However, if you have already filed a married filing jointly return, you should download and complete Form 3911.
Call 800-829-1040 to correct any agency errors.
Not paying your taxes may affect your life in many ways. When you apply to some institutions, they may also request a tax certificate from you among the necessary documents—for example, applying for a passport or health insurance.
The IRS gives 10 years to collect the relevant tax debts and all related penalties and interest. Then the taxes are considered the statute of limitations. That is, you’ll be free of tax debts.
If you purposely dodge paying your taxes, yes, it’s a major crime. In the end, it could lead to five years in jail and a fine up to $250,000 for individuals (or $500,000 for businesses).
According 2023 Tax Evasion Statistics, 63.3% of the people involved in tax fraud cases were sentenced to prison in FY2021.
Owing tax and filing are two different situations. So you may still have to submit a return. If your gross income is more than the automatic deductions for the year, you need to file your return. And you may be subject to the failure-to-file penalty.
Yes, you must still file your taxes this year, even if you didn’t file last year. File any missing returns as soon as possible to avoid penalties.
You can file your income tax return for up to 10 years. However, to claim a credit or refund, you have 3 years from the date you filed your federal income tax return or 2 years from the date you paid the tax, whichever is later.
Skipping a year can result in penalties, interest, and potential legal issues. It’s best to file any missed returns as soon as possible.
