If you’re in debt to the IRS, you’ve got to file your past-due tax returns before you can negotiate any sort of payment plan.  Here’s how to resolve unfiled taxes. No one likes a tax bill hanging over their heads. But it’s not the end of the world. The IRS has several options to take care of an unpaid tax bill.

But what if you also have unfiled returns?

Taking care of that is a little more complicated. Here’s why: Eventually, the IRS will make you a priority. When that happens? It won’t be pretty. And the IRS won’t talk to you about payment options unless your taxes are filed and up to date. Instead, you might be looking at a tax lien or wage garnishment.

If You Don’t File Taxes

If the IRS requires you to file taxes and you don’t, what happens? “If you owe the IRS and don’t file taxes, you get charged a failure-to-file penalty,” said Sharif Muhammad, MBA, CPA, PFS, MST, and CFP®, and founder and CEO of Unlimited Financial Services, LLC.

The penalty for not filing is 5% for every month you’re late. Although, the most the IRS can charge is 25% of your unpaid taxes. Let’s say you owe $10,000 in taxes. Filing 5 months late will balloon your tax debt to $12,500.

The IRS also has the option to complete a substitute return. A substitute return is where the IRS files a return on your behalf. But there’s a problem. The IRS might not have all the info. All of those deductions and tax credits you qualify for? If the IRS doesn’t know about them, your tax bill could be higher than if you did your return yourself.

If you get a substitute tax return, “you can file your own version to replace what the IRS put together,” said Muhammad. But if you don’t respond to the IRS about the substitute tax return, they’ll start the collection process.

What If You Haven’t Filed for Several Years and Owe Back Taxes?

If it’s been a few years since you filed taxes, don’t panic. But don’t keep putting it off. Now is an excellent time to seek professional tax advice. Why? You need to figure out how many years back the IRS wants you to go to catch up on back returns. Their policy requires you to go back for six years.

Quick tip: Once you start an installment plan, you will have a harder time qualifying for a debt reduction request later.  We recommend you speak to an expert to see if you qualify for tax relief first.

But they sometimes settle for less. Either way? Trying to get caught up on filing old tax returns is no walk in the park. Plus, there are penalties and interest charges that accumulate for all those years you didn’t file and didn’t pay, and this resource may help you if you have an IRS debt that’s 1, 2, or 3 years old. When it comes to getting paid, the IRS is ruthless. A professional, like a tax debt relief company or CPA, can protect you financially and get you the best outcome possible.

How to Get Caught Up on Unfiled Taxes

Filing taxes is like going to the dentist. You might not like it, but it’s got to be done. Getting caught up on unfiled taxes is similar to if you haven’t gone to the dentist in a few years. You probably have a few cavities and might need a tooth or two pulled.

In other words? It isn’t as easy as if you’d done it on schedule. But it’s possible. Whether it’s been a year or two or ten, you need your wage and income information.

Do you have your old W2s, 1099s, and IRA contribution info tucked away in an old shoebox somewhere? If you do, you’re one step ahead.

If not? The IRS has that information available. Get your identifying information together, such as your Social Security number, date of birth, filing status, and mailing address from your latest return. Then request your records online or by mail.

One thing to note. The IRS calls this information “transcripts.” So when you go to request your information, you’ll see the page that says, “Welcome to Get Transcript.” You’re in the right place.

Tax professionals have access to your tax information too, we can download the information and prepare a return for you.

Sharif Muhammad

Imagine – getting up to date on your tax returns without all the stress? Sounds pretty good. Keep in mind that filing unfiled tax returns is crucial. If you don’t? The IRS won’t negotiate payment options for your tax debt.

Payment Options for Your Tax Debt

Before talking to the IRS about payment options, consider reaching out to a professional. Turns out, when it comes to taxes, there’s a lot you might not know. When a person tries to settle tax debt themselves, “they tend to give up too much to the IRS or don’t take advantage of all the options available to them,” said Muhammad. “They might not know they can negotiate certain penalties to get their tax debt reduced.”

There’s also the option of doing a payment plan. That’s where you set up installment agreements to pay on your tax debt over time.

What about tax debt forgiveness? You might have heard about settling tax debt for pennies on the dollar. The problem? It happens less often than you might think. It’s called an offer in compromise and “only comes into play if you’re down and out,” said Muhammad.

Offer in Compromise Mistakes:

Tax relief expert (and former IRS revenue officer) Jeffrey McNeal says when he processed offers, he saw tons of mistakes made on the forms, even when prepared by CPAs and enrolled agents!  So be sure to ask an expert for help.

If you are laid off, have minimal assets, are filing bankruptcy, or have been incarcerated, that’s when the IRS is most likely to agree to an offer in compromise. Otherwise, a payment plan is usually your best bet. If you’re not sure what your options are, reach out to a tax pro.

Most tax debt relief companies offer a free consultation. At the very least, you could get a little guidance and not feel so overwhelmed by owing the IRS and dealing with unfiled tax returns.

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