If You Haven't Filed Yet, Here Is What You Need To Know

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What are the consequences if I haven’t filed a return in years and decide to file returns for all those years?

This is a good news/bad news question.

The good news is you are not alone. Thousands of Americans, chronic non-filers, as the IRS calls them, fail to file returns for multiple years.

The IRS knows that if you fail to file for a few years, you are more likely not to file in the future because you’re worried about jackbooted IRS officers breaking down your door and taking your furniture to sell on eBay to pay down your tax bill.

No need to worry. The IRS wants you to file the past returns and to file your future returns on time. No one is angry, well, maybe someone somewhere is a little angry, and there is no one pounding on your door, looking to take your house away from you.

The bad news? Fixing your tax problem will take some effort.

Here are some steps to help get you back on the road to good graces with the IRS:

• Figure out what years you need to file. Call 1 800-829-1040 to get your answer. Most people are afraid of calling the IRS because they don’t want to remind the IRS they haven’t filed. Don’t worry. The IRS already knows.
  
  
• To complete the tax returns you will have to reconstruct your income and expenses for those years. The IRS can help you with some of that information. Ask the IRS to mail or fax to you "wage and income transcripts" for the years that you have not filed. If you haven’t filed for more than seven years, the IRS will not have that information but can tell you how to get it.
  
  
• Now the biggest question is whether to use the standard deduction or to itemize. For most taxpayers, if you own your house then the mortgage interest that you paid will be a tax deduction and you will likely itemize. The amount of interest that you paid that year will be reflected in the wage and income statement you received from the IRS. So unless you have some complications, the vast majority of the information you will need to file will be in the transcripts you receive from the IRS.
  
  
• Once you have the wage and income transcripts you will either do the returns yourself or hire an accountant to do so. If you do them yourself, you can download old forms from the IRS website and fill them in by hand, or you can use commercial tax preparation software. You can even call the IRS for help at 1 800-829-1040.
  
  
• Once the forms are prepared, sign and mail them to the IRS. If you owe money for any year, you should try to pay it when you file the return. Do not delay mailing the return if you do not have the money to pay. Either pay what you can or, if you can pay nothing, simply send in the return.
  
  
• The IRS will soon send you a letter acknowledging they received your returns late and that you owe penalties and maybe some interest. If you cannot afford to pay the penalties and interest, or if you could not pay the original debt on the tax return, you can get on an installment payment plan. If the total amount you owe, including penalties and interest, is far beyond what you can pay, you may want to consider settling with the IRS by making an offer in compromise for an amount less than what you owe.
  
  
• If the amount owed far outweighs your ability to pay, you will be tempted to call a tax relief company. Don’t. If you need professional help, go to a tax accountant or tax attorney licensed in your state. They will have the experience to guide you and the cost will be far less. Also, you can appeal to the state bar or accountancy board if you are not happy with their services.