Unfiled Tax Returns
When you fail to act before the IRS does, they will file a substitute for return (SFR) for you. When the IRS files an SFR for you it is there best guess. The service will typically file the return in the best interest of the United States government. This means they will file it as you were single or married filing separately with no deductions, credits, or expenses. The service will then tack on a variety of penalties and then assess interest. This whole process is done to have the tax assessed. Once the tax is assessed the IRS can then use their steam roller of a system to collect.
Filing an unfiled tax return or even multiple years is not as big of a deal as you may believe. Even if you cannot pay the taxes that are owed with the return it isn’t that big of a deal. It is a big deal if you keep waiting longer and longer to file your back return(s) because the consequences may get worse. One thing you need to know is the sooner you file your taxes the better off things are going to be. No matter how you look at it the longer you wait the harsher the consequences may end up. You might be surprised to learn that filing back taxes may be the simplest way to get out of your tax problems. You do however need to protect yourself and have a plan. I would recommend the following 5 steps:
The first step is to gather all of your information for each year you failed to file a tax return. Research thoroughly any missing information to be sure the return you file is correct. Do you have your W-2’s, 1099’s and mortgage interest statements. Many taxpayers with unfiled back tax returns have lost their tax records. You may contact the IRS to request a wage and income transcript. This transcript will give you the wage and income information you’re missing. If you were self employed you may need to work with an accountant to help recreate an accounting or determine estimates for you.
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