Guide To Filing Back Taxes in California
Although most Americans are required to file income tax returns with the IRS every year, a significant percentage of taxpayers fail to file for various reasons. Below we attempt to address the most common issues faced by non-filers.
How Will The IRS Know If I Don’t File?
The IRS’s system is very good at pegging missed tax returns. The government’s electronic record matching make it very difficult to avoid enforcement long term. Once your failure to file is discovered, your window to get back into the system without enforcement gets smaller and smaller as time passes.
I Don’t Even Know Where To Start?
In order to avoid penalties, and other unpleasant consequences, you need to make sure to document all of your income to the best of your ability. You will need to locate invoices, bank statements, W-2’s 1099’s and any other income information you can locate for each year. Depending on your situation, you may also need to locate mortgage, dependent, health care, and business expense in order to get credit for allowable deductions, thus reducing your tax burden (you may have other deductions beyond the ones listed here). If your records are not readily available, attempt to secure them from outside sources. Financial institutions, lenders, suppliers, clients and even the IRS or your State can all be resources for tracking old records.
Should I Just Not File?
In order to minimize your exposure to criminal prosecution and other enforcement, generally you are better off filing your tax returns before the IRS or State contact you regarding the non-compliance. The tax agencies can present estimated bills based on reported and estimated information that will most likely be larger than your own filing with all the deductions and credits. The IRS will not allow any deductions in their estimated filings. They will also file the substitute returns based on the least advantageous filing status.
Furthermore, the statute of limitation on unfiled returns remains open forever, as opposed to the 3 year assessment statute on an accurately filed self-assessment. Although the IRS generally does not pursue unfiled tax returns forever, the State of California is known to collect back taxes as far back as the 80’s. Failure to file also carries a 25% penalty. Furthermore, many Americans who do not file tax returns actually miss out on getting refunds. You have 3 years to claim a refund from the due date of the return, or 2 years from the time you paid the tax (whichever is later). If you don’t file, you will lose your refund.
What If I Can’t Pay The Taxes?
Money problems will generally not excuse missed filings. If you had income that exceeded the minimum filing requirement, the IRS expects a tax return by mid-April of the following year, unless an extension is granted.
If you are not getting a refund, and instead owe a tax balance you can’t pay, here are some of the IRS programs that may be available:
- Request an Installment Agreement
- Apply For A Settlement (Offer in Compromise)
- First Time Penalty Abatement
- Request Uncollectible Status