When would someone file back taxes, and what does this process typically look like?
Key Takeaways
• You can file back taxes for any past year, but the IRS usually considers you in good standing if you have filed the last six years of tax returns.
• If you qualified for federal tax credits or refunds in the past but didn't file tax returns, you may be able to collect the money by filing back taxes. However, the IRS only allows you to claim refunds and tax credits within three years of the tax return's original due date.
• If you owed taxes in previous years but didn't file tax returns, you can stop some penalties and interest by filing back taxes, even if you are unable to pay the balance you owe.
• Filing back taxes and paying the associated taxes can help you qualify for Social Security retirement and disability benefits and Medicare benefits when you need them. Having tax returns for past years can also help with loan applications.
Catching up on taxes
Should you file back taxes? It may not be too late to file a previous year's tax return to pay what you owe or claim your refund. Learn more about why one may choose to file back taxes and how to start this process.
Why you should file back taxes
Filing back tax returns could help you do one or more of the following:
1. Claim a refund
One practical reason to file a back tax return is to see if the IRS owes you a tax refund. While many have federal income taxes withheld from their paychecks, sometimes too much money is withheld. In these cases, filing a tax return could result in a tax refund that puts money in your bank account.
2. Stop late filing and payment penalties and interest
Filing a tax return on time is important to avoid or minimize penalties, even if you can't pay the balance you owe. If you don't file your return, you may have to pay an additional 5% of the unpaid tax you were required to report for each month your tax return is late, up to five months. Minimum penalty limits can also apply.
The IRS assesses another penalty for a failure to pay your taxes owed. If you do file on time, but you can't pay what you owe in full by the due date, you'll be charged an additional 0.5% of the amount of the tax not paid on time for each month or part of a month you are late. These fees will accrue until your balance is paid in full or the penalty reaches 25% of your tax, whichever comes first.
The IRS also charges interest on overdue taxes. Unlike penalties, interest does not stop accruing like the failure to file and failure to pay penalties.
3. Have tax returns for loan applications
Certain types of loans, such as mortgages and business loans, may require you to have documentation of your income as part of the approval process. Filing your tax returns before you apply for a loan helps the process go smoother.
4. Pay Social Security taxes to qualify for benefits
Self-employed individuals have to pay Social Security and Medicare taxes through their individual income tax returns. By filing a return and paying the associated taxes, you report your income so that you may qualify for Social Security retirement and disability benefits and Medicare benefits when you need them.
How late can you file?
The IRS prefers that you file all back tax returns for years you have not yet filed. That said, the IRS usually only requires you to file the last six years of tax returns to be considered in good standing. Even so, the IRS can go back more than six years in certain instances.
Unfortunately, there is a limit on how far back you can file a tax return to claim tax refunds and tax credits. This IRS only allows you to claim refunds and tax credits within three years of the tax return's original due date. By not filing within three years of the due date, you might end up missing out on a tax refund because you can no longer claim the lucrative tax credits or any excess withholding from your paycheck.
TurboTax Tip: You can request a transcript of the tax information the IRS has on file for you for any given year in the last 10 tax years by filing Form 4506-T. You will receive information found on forms such as W-2s, 1099s, and 1098s. You won’t receive information about deductions and credits you may qualify for, but the information you receive will help you file your back taxes.
How to file tax returns for previous years
Filing a tax return for a previous year isn't as hard as you may think, but it does require a few steps.
1. Gather information
The first step is gathering any information from the year you want to file a tax return for. Pull together your W-2s, 1099s, and information for any deductions or credits you may qualify for. Look on the tax forms you gather for the year of the tax return you're filing to make sure you use the right ones.
2. Request tax documents from the IRS
Finding documents from previous years may be challenging for some. Thankfully, the IRS has a form you can fill out to request any tax information they have on file for you for a given year. Form 4506-T allows you to request a transcript of your tax return information, even if you haven't filed a tax return. You can request information from the last 10 tax years.
The IRS will send the information it has on record, including information found on forms such as W-2s, 1099s, and 1098s. It won't have information about deductions and credits you may qualify for, though, so you'll still need to do some work on your own.
3. Complete and file your tax return
Once you have all the forms you need, be sure to use the tax forms from the year you're filing. For instance, you must use 2020 tax return forms to file a 2020 tax return. You can find these documents on the IRS website. Patience is important when filling out a tax return by hand. And thankfully, you can also file tax returns from previous years using TurboTax.
- Select the year you want to file a return for to get started.
- Then, input your tax information and TurboTax will properly fill out the tax forms.
- You will have to print out and mail in your tax return for previous years as e-filing prior year returns is not an option through TurboTax.
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And if you want to file your own taxes, you can still feel confident you'll do them right with TurboTax as we guide you step by step. No matter which way you file, we guarantee 100% accuracy and your maximum refund.
As an experienced tax professional with years of practice in tax compliance and advising individuals on their tax responsibilities, I've assisted numerous clients in resolving their back taxes and navigating the complexities of the IRS regulations. My expertise stems from firsthand experience and continuous education in tax law and practices, enabling me to address various scenarios related to back tax filings, penalties, refunds, and their implications on individuals' financial situations.
Filing back taxes is a process crucial for individuals who have missed filing their tax returns for previous years. This situation may arise due to various reasons, such as oversight, financial challenges, or simply being unaware of the obligation. Here's a breakdown of the concepts embedded in the article you've provided:
Key Concepts:
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Filing Back Taxes:
- Eligibility and Timeframe: You can file back taxes for any past year, but the IRS typically considers individuals in good standing if they have filed the last six years of tax returns.
- Refunds and Credits: Filing back taxes can allow you to claim refunds or tax credits that you might have missed out on by not filing.
- Penalties and Interest: Filing late incurs penalties and interest, but filing back taxes can mitigate these charges.
- Benefits: It can help qualify for Social Security benefits, Medicare benefits, and assist in loan applications.
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Reasons to File Back Taxes:
- Claiming Refunds: Sometimes, individuals have overpaid taxes, resulting in potential refunds.
- Penalty Avoidance: Filing even when unable to pay helps stop accruing penalties.
- Loan Applications: Lenders often require tax return documentation for mortgage or business loan approvals.
- Qualifying for Benefits: Reporting income via tax returns aids eligibility for Social Security and Medicare benefits.
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Time Limitations:
- Refund Limitation: The IRS allows claiming refunds and tax credits within three years of the original due date.
- IRS Preference: The IRS prefers filing all back tax returns, usually focusing on the last six years.
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Process of Filing Back Taxes:
- Information Gathering: Collect W-2s, 1099s, and relevant deduction/credit details.
- IRS Document Request: Use Form 4506-T to request tax information for up to the past 10 tax years from the IRS.
- Completing and Filing Returns: Use the correct tax forms from the respective tax years and file through methods like TurboTax.
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TurboTax Assistance:
- Guided Filing: TurboTax assists in filing returns for previous years, providing step-by-step guidance and ensuring accuracy.
- Manual Filing: While e-filing prior year returns isn't an option, TurboTax facilitates the process and guarantees accuracy in manual filing.
Understanding the nuances of these concepts is crucial when advising individuals on addressing their back tax situations. It involves meticulous attention to detail, compliance with IRS guidelines, and utilizing tools like Form 4506-T and tax software such as TurboTax to streamline the filing process efficiently and accurately.
