Some people do the unthinkable. They don’t file their tax returns each year.
They know they should. But they are so afraid of the unknowns that they get paralyzed and don’t do anything. They may start getting letters from the IRS or state taxing authority. First, it’s a request (later a demand) for the return to be filed. Then the government computes what they think your return would look like (using no deductions and the worst possible fact pattern), and the non-filer starts getting a request for money, often more money than they would owe under an accurate tax return.
If you haven’t filed taxes for many years, the first step is to file your tax returns. I’ll say it again, the first step is to file.
If you have lost some or all of your paperwork, you can request a transcript online from the IRS of all the forms they have received with your SSN.
Sometimes you end up with refunds. That’s rare, but sometimes you have buried your head in the sand over fear of nothing. And if you were more than three years behind, your rights to the refunds that old will expire. The IRS reports that millions of dollars of estimated refunds go unclaimed each year.
Unfortunately, more often you owe money. And because the returns and your payments are late, there are penalties and interest added onto the balance.
But then we figure out a plan. First, we stop the future leak. If you aren’t withholding enough from your paycheck or making estimates on self-employment income, we make sure that we get that fixed so you won’t owe the next year and compound the problem.
Second, we look at options for the balance you already owe.
The primary method is an installment agreement, where you make the biggest down payment you can and then get on a monthly payment plan until the balance is paid off.
But sometimes the balance is too monumental for you to pay off, given your income and assets. If that’s the case, there are options for negotiation. But the IRS and state taxing authorities will not discuss those options until all delinquent tax returns are filed.
One more point! If you have OTHER non-tax-related debt, and are considering debt consolidation options, please be careful. Often debts that get erased or forgiven are treated as taxable income (i.e., the way the IRS looks at it is that someone gave you money and you paid off your debts—you get taxed on that money you were “given”). Debt consolidation often results in later tax debt, so ask questions going into that process to make sure you understand the consequences.
If you are someone struggling with tax debt or unfiled returns, please contact me for assistance. There is no shame in admitting a problem and getting help to fix it. We look forward and find solutions.