Haven’t Filed Your Taxes in a While? No Problem!
Updated: Jan 5, 2022
A good checklist can help you focus on getting everything done. We thought it would be helpful to post this Checklist to a Tax Resolution for those who would have filed their federal or state income tax returns in a while. The goal here is to get into compliance, then see if you can qualify for one of the IRS programs to pay off your back tax debt.
A CHECKLIST TOWARD RESOLVING UNFILED TAX RETURNS (and the taxes too)
GATHER THE DOCUMENTS:
In order to file your tax returns correctly, you'll need to gather your bank statements, automobile mileage log, business income statement, and receipts for your deductions.
IRS WAGE & EARNINGS REPORTS:
Request from the IRS these reports for the tax years to be filed so that you know what the IRS knows.This can help when you cannot locate your original income documents.
RECONSTRUCT WHAT IS MISSING:
If you are looking for deduction receipts, call the vendor, mortgage, or utility company, or use an industry-standard measure.Get your business books and records up-to-date.
PREPARE THE MISSING RETURNS:
To be considered in compliance, the last six years of tax returns need to be filed with the IRS.It is imperative that you run the "married filing joint" vs. "married filing separate" calculations so you can find opportunities to reducing your tax bill.Request your account transcripts from the IRS to see if they have already filed a substitute for tax return.
CALCULATE YOUR REASONABLE COLLECTION POTENTIAL (RCP) :
This calculation consists of two parts: your net assets in equity and your future income.
PART ONE: Gather the following documents to calculate your net equity in assets: Cash on hand, most recent retirement account statement, cash value of your life insurance policy, the value of your real estate holdings, the book value of your vehicles, and listing of any other valuable collectibles. The IRS will use a quick-sale value for all of these assets. In general, it is about 80% of the value, less any loans against the property.
PART TWO: The IRS wants to see how much you can pay if an offer is extended to you. The formula is a cash flow analysis of what you can pay after allowable expenses are paid. Add up all of your household's income and subtract the standard or allowable deductions on IRS Form 433-A. There are many traps to avoid in this calculation, which is why MANY offers get rejected by the IRS. Please consider hiring a qualified tax professional to help guide you away from the pitfalls.
DETERMINE WHICH IRS OFFER PROGRAM YOU QUALIFY FOR:
Maybe your RCP shows you are a good candidate for acceptance into the Offer in Compromise program. Perhaps your situation warrants an installment agreement if your RCP show you can pay the back taxes in full with the statutory time frame.
This checklist is just your starting point to understand how you can get those older tax returns filed and how the IRS may determine if you qualify for a fresh start.
If you feel that you need to get the IRS off your back, please reach out to us, and we can represent you and guide you to a tax resolution.