Falling behind on filing your taxes can happen to anyone. Life gets busy, circumstances change, and before you know it, five years have passed without filing a tax return. While this situation can feel overwhelming, it’s important to address it sooner rather than later. Here’s a step-by-step guide on what to do if you haven’t filed taxes in five years.
1. Don’t Panic, But Take Action
First, take a deep breath. While it’s natural to feel anxious about not filing for several years, the IRS is generally more interested in getting people back into compliance than punishing them. However, the longer you wait, the more penalties and interest you could accrue. The key is to take action as soon as possible.
2. Gather Your Financial Documents
To get started, you’ll need to gather all the necessary financial documents for the years you missed. This includes:
- W-2s and 1099s from employers
- Bank statements and other income records
- Investment income records
- Deduction receipts such as charitable donations, medical expenses, and mortgage interest
- Any other relevant financial documents
If you’re missing some documents, don’t worry. You can request copies from your employer, financial institutions, or directly from the IRS.
3. Request Your Wage and Income Transcripts from the IRS
The IRS can provide wage and income transcripts, which summarize the income information they have on file for you. These transcripts can help fill in any gaps in your records. You can request these transcripts online through the IRS website or by mail.
4. Prepare and File Your Tax Returns
Once you have all your documents, you can start preparing your tax returns for each year. It’s generally best to start with the oldest return and work your way forward. You can do this yourself using tax software, or if your situation is complex, consider hiring a tax professional to help.
5. Understand the Potential Consequences
While filing your back taxes, it’s important to be aware of potential consequences:
- Penalties and Interest: The IRS charges both penalties for late filing and interest on any unpaid taxes. The sooner you file, the less you’ll owe.
- Refunds: If you’re owed a refund for any of the years you didn’t file, you must file within three years of the original due date to claim it. Otherwise, you forfeit the refund.
- Tax Debt: If you owe taxes, the IRS offers payment plans and other options to help you manage your tax debt.
6. Consider an Installment Agreement
If you owe more than you can afford to pay in a lump sum, you may be able to set up an installment agreement with the IRS. This allows you to pay your tax debt over time. The IRS offers various payment plans depending on how much you owe and your financial situation.
7. Consult a Tax Professional
If you’re unsure about how to proceed, it’s a good idea to consult a tax professional. They can help you navigate the process, minimize penalties, and ensure that you’re fully compliant with the IRS.
8. Stay Compliant Moving Forward
Once you’ve caught up on your tax filings, it’s crucial to stay compliant moving forward. Set reminders for future tax deadlines, keep your financial documents organized, and consider working with a tax professional annually to avoid falling behind again.
Conclusion
Not filing taxes for five years might seem like a huge problem, but it’s one that can be solved with the right approach. By gathering your documents, filing your back taxes, and working with the IRS on any owed amounts, you can get back on track and avoid further issues. Remember, the most important step is to take action and start the process today.
