Unfiled tax returns: Everything to know
It happens more often than you might think. Life gets busy, finances get complicated and suddenly, a year (or more) goes by without filing your tax return. Whatever the reason, though having unfiled tax returns can create serious financial and legal problems, especially if the issue is ignored for too long. The Internal Revenue Service (IRS) doesn't just forget about your missing tax returns, after all, and the consequences can grow more severe over time.
If you have unfiled tax returns, it may help to know that you're not alone — millions of taxpayers are dealing with the same issue right now. And, the even better news? There's almost always a way to fix the situation. The IRS is typically a lot more interested in getting people back on track than punishing them outright for failing to file their taxes, and the agency has processes in place to help you. That said, you typically have to take the first step to resolve the issue.
Knowing what to expect and how to approach the process strategically can make it easier to take that step. So, whether you have one year of unfiled taxes or several, there are a few things to consider.
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Unfiled tax returns: Everything to know
Here's everything you need to know about unfiled tax returns, including the possible consequences and how to fix the situation.
Who's required to file a tax return?
Many people assume that if they don't owe taxes, they don't need to file a return. However, you may still be required to file, even if you're not required to pay anything. The obligation depends primarily on your income level, filing status and age.
For example, according to the latest IRS guidelines, single filers under 65 must file if they earned $14,600 or more, while married couples filing jointly need to file if their combined income exceeds $29,200. The filing requirements differ for those over the age of 65, though — and for those who are self-employed, are married and filing separately or for other types of taxpayers, so it's important to stay informed on the latest guidelines.
Find out how a tax relief specialist can help you navigate your unfiled taxes.
What happens if you don't file your tax return?
When you fail to file a required tax return, the repercussions extend beyond simple penalties. The IRS can implement a "substitute for return" based on information they have from employers and financial institutions. This might sound helpful, but they will not apply deductions or credits that could lower your tax liability.
The failure-to-file penalty also accrues at 5% of the unpaid taxes for each month your return is late, up to a maximum of 25%. This penalty is substantially higher than the penalty for filing but not paying, which is just 0.5% per month.
You could also lose any refund you're entitled to. If you're owed a refund, you have just three years to claim it. After that, the IRS keeps the money. And, in severe cases, the IRS may levy wages, garnish bank accounts or seize assets over unpaid taxes.
Is there a statute of limitations on unfiled tax returns?
Many taxpayers mistakenly believe that if they wait long enough, their unfiled returns will become irrelevant. In reality, the statute of limitations on tax assessment doesn't start until a return is filed. If you have unfiled returns, though, the IRS can come after you indefinitely. And, as noted above, you also cannot receive refunds for returns filed more than three years late, meaning you could forfeit money that's rightfully yours by delaying your filing.
How to get back on track with unfiled tax returns
The IRS offers various voluntary disclosure programs for non-filers. The most straightforward approach is to simply file the missing returns before the IRS contacts you. This often results in more favorable treatment.
That said, reconstructing records for past tax years can be challenging. Start by requesting wage and income transcripts from the IRS, which contain information reported by employers and financial institutions. These transcripts can be accessed online through the IRS website. If missing expense records, bank statements, credit card reports and calendar entries can help reconstruct deductible expenses.
Those facing complex filing situations, particularly those involving multiple years of unfiled returns, may want to consider professional assistance. An enrolled agent, CPA or tax attorney — or a tax relief company that employs these types of tax specialists — can help negotiate payment plans, penalty abatements and other arrangements to mitigate the financial impact of your delinquent filings.
The bottom line
Dealing with unfiled tax returns can be stressful, but taking proactive steps to file past-due returns can help you avoid extra penalties, interest and harsh IRS enforcement actions. If you're unsure about how to proceed, consider seeking help from a tax professional who can guide you through the process.
The most important thing, though, is to act now rather than letting the problem grow. The IRS is generally more lenient toward those who voluntarily come forward than those who continue to ignore their obligations. By catching up and staying on top of your taxes moving forward, you can avoid unnecessary stress in the future.
