Filing your tax return is often a job that people are happy to put off until the last minute. That said, things might have proven a little different this year, given the Internal Revenue Service (IRS) requires taxpayers to file either their 2018 or 2019 return in order to get their coronavirus stimulus check.
What the pandemic has also meant is some additional leeway for all tax-filers this year, after the IRS shifted the original tax deadline for 2019 returns back from April 15 to July 15. This means Americans have the option of leaving the best tax software packages untouched for an extra three months this year, thanks to the extra time available to both file and pay their taxes without fear of interest or penalty reprisals.
In a normal year, you also have until the April deadline to request an extension that means you can hold off filing your return until October 15. The deadline to request this extension has also been pushed back to July 15 this year, although importantly the final October 15 deadline remains unchanged.
Why you should file your past due return now
Even though you have a little extra time on your side, this doesn’t mean you should put off the task indefinitely. Importantly, if you don’t file your taxes on time - or at all - there are usually harsh consequences for letting the deadlines pass.
Avoid fines and potentially worse
The most likely reprimand will be in the form of fines, but if things are left unresolved, this could eventually result in a claim by the IRS to your current and future property, including house, car or wages, and even criminal charges.
If you fail to file by July 15 this year - or October 15 if you arrange an extension - you can expect to receive a notice from the IRS by mail. Ignoring such letters is not a good idea - the best course of action is to reach out to the IRS and let them know your situation. If you don’t have the money at hand to pay, it might be possible to negotiate a payment plan or even a reduction of the total owed.
What you can also expect if you file late is a penalty of 5% of the tax owed for up to five months. Filing more than 60 days after the due date could result in a minimum penalty equal to the lesser of 100% of the tax required to be paid on your return or $435.
If you have filed but then fail to pay your taxes, you can expect a penalty, plus interest.
To claim prior tax year refunds
Another reason to file prior tax year returns could be to secure a tax refund from the IRS that you are owed. It was recently revealed that three-quarters of taxpayers received a refund for 2018, at an average of almost $3,000. However, you will need to have completed a tax return for a given year in order to get it...and not owe the IRS anything anyway.
Normally you get a three-year window of opportunity to claim a refund before any money owed to an individual becomes property of the U.S. Treasury. However, the coronavirus extension means that by the time the July 15 deadline passes, late 2016 filers will have had three years and three months to make their claim, so there really is no excuse.
To protect Social Security benefits
Another way in which you could miss out money is if you are self-employed. If you fail to file your federal income tax return, any self-employment income you earned will not be reported to the Social Security Administration and you will not receive credits toward Social Security retirement or disability benefits.
To avoid credit report damage and other problems securing loans
If you owe money to the IRS, this could be flagged on your credit report in much the same way as any other debt would, and affect your ability to secure credit. In a similar vein, if you are looking to buy or refinance a home, get a business loan or apply for federal aid for higher education, the best mortgage lenders and other financial institutions will want sight of copies of filed tax returns to proceed.
How to file prior year tax returns
Whatever your reason for having previously neglected to file a return - and regardless of your reason for wanting to do so now - there are a few ways in which you can file your prior year taxes.
Contacting the IRS is the obvious first step, so that you can find out exactly what you need to provide and for which years. If you have several past-due returns to file, you might have to file returns for the current year and past six years, although your particular circumstances and what the IRS decides will ultimately determine how far back you should file.
The IRS website also plays host to most of the prior tax year forms, instructions and information you might need. But while this might be the one of the cheapest ways to file prior year returns, it might also prove quite difficult. There will be some people who are in a position to pay for a professional tax preparer to put their taxes in order, although the likelihood is that most who are beholden to the IRS will need a more affordable solution.
In this respect, the best tax software can help take the stress out of filing taxes, and basic packages are often available completely for free. If you earn less than $69,000, the IRS also partners with some providers to facilitate the preparation of tax returns at no charge. However, while most free tax software will let you file the Form 1040 and take a few common tax breaks, if your circumstances are a little outside the norm, or you think you’ll benefit from some extra support, you will likely need to pay a little more for the best tax software packages.
Such software will help you quickly file online the latest tax year returns, and deal with the more complicated aspects of tax return. Importantly, they can also be used to help get your finances in order for prior tax years too - while the IRS does not support filing prior year tax returns electronically, the best tax software will lead you through filling in your return before you print it out and mail it to the IRS.
If you prefer face-to-face support, or have a heap of paperwork to sort through, some of the best tax software providers have physical offices which you can visit too.
Take back control of your tax situation, and lower your financial stress levels, with the best tax software providers.