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While it may be tempting to keep putting these tasks off, filing and paying taxes isn’t something you want to ignore. IRS penalties and interest can add up fast, and the IRS has collection powers that other creditors don’t have.
If you’re worried about how to file previous years' taxes, getting caught up might not be as daunting as you think. Often, the hardest step is just getting started, and we’re here to help you do just that.
How to file previous years' taxes
Filing a previous year’s tax return is a lot like filing an on-time return, with a few key differences. Here are the steps you need to take.
Step 1: Gather your tax documents
Before you get started, gather all relevant documents and records for the tax year in question. This may include:
- Copies of your last filed tax return
- Your Employer Identification Number (EIN) or Social Security number (SSN)
- Financial statements (balance sheet and income statement)
If you don’t have financial statements because your bookkeeping isn’t up to date, Bench can help you get caught up. We record and categorize all transactions from your receipts, invoices, bank statements, and credit cards; reconcile your bank accounts; and produce financial statements needed for filing your return.
If you’re missing information, such as W-2s, 1099s, and other tax forms, you can request a wage and income transcript from the IRS. This transcript shows all of the information reported to the IRS on your behalf for that tax year.
Step 2: Complete the right tax forms
IRS forms change from year to year, so you need to make sure you use the forms for the tax year you need to file. If you use online tax software to file a return, make sure you select the correct year in the software.
If you’re filing without the help of software, you can download prior-year forms and instructions for completing those forms at IRS.gov.
You can also work with a professional tax preparer if you don’t feel comfortable filling out the forms on your own.
Step 3: Mail or electronically file last year's tax return
If you use online tax software or work with a tax professional, you may be able to file a late tax return electronically. The IRS’s Modernized e-File (MeF) system allows authorized e-file providers to e-file returns for the current year and two previous tax years. In 2024, you can e-file for the 2023 and 2022 tax years. Just keep in mind that e-filing isn’t available during the IRS’s annual maintenance period, which runs from late November until mid-January each year.
If you can’t e-file back tax returns, you’ll need to mail them to the IRS. Print out the forms and mail them to the address listed in the form’s instructions. Mailing addresses can also change from time to time, so be sure you get the address from the instructions for the right tax year.
Step 4: Pay your overdue taxes (or get your tax refund)
You can pay the tax you owe (plus penalties and interest) via the Electronic Federal Tax Payment System (EFTPS), IRS Direct Pay, or by mailing a check with your return. You can also request an IRS payment plan if you can’t afford to pay the balance due (covered later in this guide).
File your return sooner rather than later if you’re expecting a refund instead of a tax bill. In most cases, you only have three years from the original due date of your return to file a return and claim your refund. If you file after that three-year window closes, the IRS won’t issue a refund or apply any overpayments to another tax year.
As long as you file within that window, the IRS should issue your refund via check or direct deposit. Direct deposit is always the fastest way to get a refund, but you can ask the IRS to apply your refund to the following tax year if you expect to owe money down the road.
Are you overwhelmed by small business tax season? Check out our easy guide on taxes for small businesses.
Why do I have to file previous years' taxes?
For most people, filing back taxes isn’t optional—it’s required by law. While some people don’t have to file tax returns because they didn’t make enough money during a tax year, most do. In fact, the threshold for filing for self-employed workers is lower than most since you have to file a return if you have self-employment income of $400 or more.
If you’re not sure whether you need to file, check out the IRS’s Do I Need to File a Tax Return? interactive tool.
Other reasons you may need to get caught up on your tax filing obligations include:
Limiting IRS penalties and interest
The IRS charges interest and penalties from the date your taxes were due until you pay them, so filing and paying the tax you owe limits the amount you’ll have to pay.
Getting approved for a loan
Lenders may require you to file past-due returns before approving your mortgage or business loan application.
Avoiding criminal penalties
Under Internal Revenue Code (IRC) 7201, willful evasion of taxes is punishable by up to five years in prison and $250,000 in fines. While the IRS generally won’t go after you for criminal tax evasion if you simply got behind on your tax filing due to a death in the family, illness, or another circumstance beyond your control, they aren’t as lenient if you simply avoided filing to get out of paying the amount you owe.
Starting the statute of limitations
The IRS generally has three years from the date you file your return to audit your return and assess additional taxes. However, that statute of limitations doesn’t start until you file your return.
Filing your tax return starts the clock, so you don’t have to worry about the IRS asking questions about your return five, 10, or 15 years down the line.
Keeping your passport
If you have seriously delinquent tax debt, the IRS can alert the State Department. When this happens, the State Department can deny your passport application or revoke your current passport. Filing your returns and paying the tax you owe ensures you get to hold on to your passport.
Avoiding tax levies and liens
The federal government has more collection tools than the average creditor. If you neglect your tax liability and ignore the IRS’s attempts to make payment arrangements, the IRS can place a levy or lien on your assets.
A levy is a legal seizing of your property to settle a debt. The IRS can levy your bank accounts, financial accounts, paycheck, vehicles, real estate, and other property. A lien is a legal document alerting other creditors that the IRS has a claim against your property. The IRS can place a lien on your home or other real estate, making it hard to sell or refinance the property.
What happens if I don’t file previous years' taxes?
If you don’t file a tax return, the IRS may file one for you. That might sound convenient, but an IRS-filed return likely won’t work out in your favor.
When the IRS files for you, it’s known as a Substitute for Return (SFR). The problem with an SFR is that the IRS uses the information it has available, which is primarily related to your income, such as W-2s and 1099s. The IRS typically doesn’t have information about deductible business expenses, charitable donations, and other tax write-offs, so those aren’t included on your SFR.
As a result, it’s almost guaranteed that you’ll owe more with an SFR than you would if you filed a return that includes all of your available deductions and tax credits.
Plus, the longer you go without filing, the more your interest and penalties will pile up. Those penalties can include:
- Failure to File Penalty. This penalty is 5% of your unpaid taxes for each month or part of a month that your return is late, capped at 25% of your unpaid balance.
- Failure to Pay Penalty. This penalty is 0.5% of your unpaid taxes for each month or part of a month that your tax liability remains unpaid. If both the Failure to File and Failure to Pay penalties apply to the same month, the IRS will apply a combined penalty of 5%.
If your tax return is more than 60 days late, the minimum Failure to File Penalty is $435, or 100% of the tax due, whichever is less.
Keep in mind that the IRS also charges interest on those penalties, so the higher your penalties, the higher your interest will be as well.
Further reading: What Happens If You Don’t File Taxes For Your Business
What if I can’t pay my previous years' taxes?
Don’t let the fact that you can’t afford to pay your tax bill keep you from filing your tax return. Depending on how many years you have to catch up on, there different IRS requirements you should know about.
If you’re three years behind, for example, the good news is If you get caught up quickly, skipping a few years may not have a significant financial impact on your business.
If you find yourself five or 10 years behind, the situation is a bit more complicated but that’s where Bench comes in. The most important step you can take right now is to simply get started.
If you’re five years behind on your taxes, for each month your return has not been filed, a 5% failure-to-file penalty is added to your tax debt. Meanwhile, if you haven’t filed taxes for 10 years, in addition to missing out on possible tax refunds, there are several areas of your life that require you to present your recent income tax returns. If you haven’t filed your taxes recently, you won’t have any tax returns to present!
You may be asked to show your recent tax returns when you apply for a passport, for example. You will almost certainly be asked for tax returns when you apply for a mortgage, rent or other loan. You may also be asked for your recent tax returns when you apply for health insurance.
The IRS has several options that can make getting caught up on your back taxes affordable, including:
Penalty waivers
The IRS considers waiving penalties for two reasons:
- Reasonable cause. If you didn’t file on time due to extenuating circumstances, such as a fire or natural disaster, death of an immediate family member, or illness, the IRS may agree to waive penalties.
- First-time penalties. If you’re normally on top of your tax filing responsibilities and just fell behind this year, the IRS may grant you the one-time courtesy of removing your penalties.
To ask the IRS to waive your penalties, call them at 1-800-829-1040 or the phone number on your IRS bill if you have one. The IRS doesn’t waive interest, but getting penalties waived can drastically cut the amount you have to pay.
Payment plans
The IRS offers two types of payment plans that can make paying your back taxes more affordable.
- Short-term payment plan. If you can pay the amount you owe within 180 days, the IRS doesn’t charge a setup fee for a short-term payment plan. You can pay the amount you owe via IRS Direct Pay or by check, money order, debit, or credit card.
- Long-term payment plan. If you need more time to pay, you can request a long-term payment plan. For this type of plan, you tell the IRS how much you can afford to pay each month and the IRS either approves or denies your request. The IRS charges a setup fee ranging from $31 to $130, depending on whether you agree to have monthly installments deducted automatically from your checking account or pay via another method.
You can apply for an installment agreement online or by calling the IRS at the number shown above.
Offer in compromise
An offer in compromise (OIC) is an option the IRS provides to people who can’t pay their tax debt without causing themselves economic hardship. With an OIC, the IRS agrees to settle your debt for less than the full balance due. But this option isn’t available to everyone.
To apply for an OIC, you have to meet specific eligibility requirements, complete an application, pay an application fee, and submit documents proving the assets, debts, and income shown on your application. You can find instructions for applying for an OIC in the Form 656 Booklet.
Completing the OIC application and negotiating the offer amount with the IRS is complicated, so it’s best to get help from an experienced tax professional.
Need to file last year's taxes? Bench can help
At Bench (that's us), we help small businesses with their bookkeeping and tax filing. We have a specialized team of experts to get your business financials caught up-to-date and ready to file prior years' tax returns. We can even file your return for you. Start getting caught up today.
