The best way to avoid any tax problems is to file your taxes on time and do it without incurring any mistakes.
However, this is an ideal scenario. In the real world, it's not uncommon for people to delay filing their taxes—not for months, but even years. How is this possible? Well, it's possible because the IRS allows you to file back taxes.
What's the Time Limit for Filing Back Taxes?
There is no hard and fast limit on how long you can go without filing taxes, but that doesn't mean you should avoid filing. If more than three years have passed since you last filed taxes, you cannot claim any tax refund that you might have been entitled to.
Moreover, the IRS is highly vigilant of tax evaders. So eventually when they notice that you've not filed your returns for several years despite earning an income, they will file a substitute tax return for you. This return will not take into consideration any tax credits or deductions. Ultimately, you'll be liable to pay an amount that's way higher than what you would have paid if you filed the return by yourself, or by a tax professional.
The good news is, before the IRS files the return, they will send you a Notice of Deficiency CP3219N. You will get a 90 day period to catch up on your back taxes, or file a petition with the US Tax Court. In case you fail to take any action, the IRS will move ahead with its procedure. Once you receive this 90-day notice, you cannot ask for any further extensions.
The tax bill generated needs to be paid in full on time. If you fail to do so, the IRS will resort to their collection process—there could be a levy (legal seizure of property) or a federal tax lien.
What can the IRS do if you owe them money? Read here.
How to Avoid this Hassle?
The only way to avoid this complexity is to file taxes on time. And in case you fail to do it, file your taxes voluntarily at least within three years of the deadline.
Benefits of Voluntarily Filing Your Past Due Tax Returns
1.You will have to pay a limited amount in penalty and interest charges.
2. If you file within three years of the due date, you can still claim a tax refund, if you're eligible.
3. If your total tax liability is higher than what you can afford to pay right now, you can request an extension for 60-120 days.
Speak to the Tax Experts
If you haven't filed tax returns in the past years and you're not sure how to go about it, taking professional help would be the best way out. Our experts at Accountants Now will help you sort out your IRS debt and assist you with filing back taxes. Contact us today.