For various reasons, some individuals do not file tax returns for a number of years. The reason might be of a personal nature, such as declining health. For other individuals, the possibility of owing money causes them to avoid tax preparation altogether. Regardless of the reason, outstanding income tax returns for earlier years can be completed and filed now.
Filing tax returns for multiple years at once is not that uncommon. Tax forms are available for prior years, and most tax preparers have software for several recent years. Once you are committed to catching up on your tax filing, the first step is to organize all your information for the tax returns that need to be filed.
Segregate IRS Forms by Year
You might have many tax documents for multiple years stored together in a box or large envelope. If so, take the time to separate the documents by year. Most IRS tax forms have a specific year printed on the form.
Gather Supporting Information for Each Year
In addition to IRS forms, you may need other statements to complete your tax returns for earlier years. If you have any unreported self-employment income, calculate the amount of revenue received from the activity. Gather any supporting documents necessary to substantiate deductible expenses incurred during your time of self-employment.
In addition to reporting income, you must also determine your filing status and number of dependents for each year. You may need to gather additional information concerning your spouse or dependents, such as education expenses. If you are eligible for an education tax credit or the earned income credit, those amounts could result in a tax refund.
Consider Potential Penalties
The good news is that there is no penalty for filing a late tax return if you are due a refund. The IRS does not usually pay interest on refunds. By receiving a refund on a late return, you have effectively granted the government an interest-free loan.
If there is a balance due on an overdue return, penalties may be assessed both for paying late and for filing late. The failure-to-file penalty is 5 percent of the unpaid balance for each month, or portion of a month, that the return is late. The maximum amount assessed for the failure-to-file penalty is 25 percent of the balance.
There may also be a failure-to-pay penalty of one-half percent of any unpaid balance for each month, or portion of a month, that the balance is outstanding. Interest is also likely to be charged for the duration between the original due date of each return and the payment date.
Quite a few overdue tax returns actually result in refunds. Contact a tax preparer for further assistance in gathering together all the information necessary to handle years of unfiled tax returns.