If you own your own business or are an independent contractor who doesn't have your federal taxes taken out of your pay-checks, then you know you are supposed to file your taxes every year and pay what you owe when filing. If you neglected to file at all for several years, then you are now facing many cash penalties on top of what you already would have owed each year that you neglected to file. It is important to start working on getting your tax payments up-to-date, because the government is still expecting these payments, and they won't simply forget about them. However, there are ways to help reduce the money you owe, which may have accumulated into a very large sum. Here are the steps to take to get caught up on your taxes while paying as little as possible.
1. Contact the IRS and Explain Your Situation
Not paying your taxes is technically a misdemeanor crime in the United States. The US government has the ability to fine you an extra $25,000 for each year you neglected to file and pay your taxes and even send you to prison. While this is unlikely to happen to the average citizen, it is important to be aware of how serious the government takes not filing taxes. For this reason, it is important to contact the IRS and inform them that you plan to take care of your over-due taxes soon and follow-through with your commitment.
Before you contact the IRS, it is important to have a plan of action in place, so you can begin the filing process that you are committing to. To reduce the other penalties that are frequently enforced, like the "failure to file" penalties and the interest added to the initial payment you should have already paid the IRS for each year you neglected to file, you should also give the person you speak with a good reason why you didn't file.
While you should never lie, realize that acceptable reasons that can help reduce the penalties you owe include serious illnesses, natural disaster, or death in the family. If nothing like that occurred in your life, then you can also fess up and simply tell them that you did not know how to file or were having financial problems that led to your inability to hire a professional to file your taxes for you. Be honest and explain your situation in full if you want the best chance of having the penalties you are facing reduced or even completely forgiven.
If you want the best chances of having extra penalties and fees waived, instead of calling the IRS yourself, you can have an experienced tax attorney make the call for you. They can make sure you are given the tax breaks you deserve and help negotiate the time you are given to take care of your back taxes.
2. File Your Returns
The government always wants your last six years of tax returns filed; however, if you neglected to pay for over six years, they determine whether they want even older tax forms filed on a case-by-case basis. You can find out what you need to file by asking the IRS.
While it will be a daunting process, you must then go back and file each year's un-filed tax return as if you were completing them for the first time. If you can afford to hire a professional, then it will help you with the process. If you are a contractor and lost past 1099 forms or other forms you need, then you can contact the IRS to ask them to send you copies of all financial documents they have on file. You can claim any valid deductions you had for each year, and you should attempt to find as many old receipts as you can for business purchases you are declaring on your forms as deductions.
Do not worry about sending any cash or payments in to the IRS when filing your back-taxes. You won't know exactly what you owe once interest and penalties are added, anyway. Simply make sure your returns are completed in full and submitted to the government either electronically or by snail-mail.
3. Wait 8 Weeks for Your IRS Bill
About eight weeks after you submit all of your past tax returns, you will receive a bill that includes all past-due taxes owed, interest, and any penalties. You do not have to put yourself into debt and send a check immediately, and the IRS does not expect you to do so. You can contact the IRS to set up a payment plan, and they often allow you to simply tell them how much you can afford to pay each month and what day you would like as your "due date." Don't promise more than you can afford every month.
If you find that the IRS did not waive as many penalties as you think you deserve to have waived, then contact a tax attorney from a company like Wiesner & Frackowiak, LC to help you negotiate with the IRS to reduce those fees.
If you haven't filed your taxes for several years and know you owe the IRS money, then it is important to get your taxes up-to-date as soon as possible. The longer you wait, the more penalties and fees will be added to your final tax bill, and you may put yourself in a situation where the government is less likely to waive those fees.