Your small business keeps you busy all the time, you’d like to have a personal life, too—which is why the last thing you want to think about is filing your taxes… and so you don’t. Before you know it, you’re a couple of years behind in your tax filings, and now you need to know how to file past due taxes. Yikes!
Although backed taxes aren’t a good thing, you definitely aren’t alone: an estimated one million taxpayers didn’t file a federal income tax return in 2014. Those taxpayers were at risk of forfeiting a total of $1.1 billion in refunds if they didn’t file by the April 17, 2018, filing deadline. That’s major money (obviously) that you could use to invest in your business—and make sure you have that personal life, of course.
You might not be one of the lucky million who is owed a tax refund, sure. Regardless, you must still file a tax return for each year in which you meet the filing requirements. And even if you don’t meet the filing requirements, if you had taxes withheld at any point during the year you should file a return to get a refund. The consequences for not filing your past due taxes can impact every area of your life, even hampering your ability to travel or get a small business loan.
If you need to file past due taxes, read on for some tips to help you get caught up.
If you missed the tax deadline, you’re in luck: the IRS has made the process to file past due taxes easier. In years past, all past due tax returns had to be filed on paper forms. With the introduction of Modernized e-File, you can electronically file your 1040 returns for the past two tax years. If you don’t have access to the Modernized e-File system, or if you need to file past due taxes not reported on Form 1040, you’ll need to file using paper forms.
In that case, you must (did we say must?) use the original forms for the tax years for which you are filing. In plain English, that means you can’t use this year’s tax preparation software package to try to file last year’s taxes. Doing that might cause problems with the current year’s return, and it will almost certainly lead to you having to submit the past due tax return again, too.
You can find any forms you need—as well as the instructions and tax tables for each year—on the IRS’s website. So, get it over with, and get it done right!
Good news: the IRS has made it easy to get the forms you need to file past due taxes. This is great! Less good news: You need more than just the tax forms to file your past due returns.
Chances are, if you’re more than a year or two past due on your tax filings, you’re also going to have a hard time locating your tax documents. (We’re not psychic, we’ve just been around the accounting block.) If your business is your sole source of income, you’ll have to catch up your bookkeeping in order to be able to accurately complete your previous year’s filings.
The best way to do this? Recreate your books using your bank accounts and credit card statements.
Banks and credit card companies are getting better about allowing access to historical statements online, but if you use a smaller bank (local banks especially, which don’t always have robust online banking services), you might have to request statements from them.
If you also have income from a W-2 job, or if your spouse was employed, you will need the W-2s for each tax year. You have a couple of options to get this information:
If you have past due taxes for several years, you might be tempted to put off filing until after you have all your ducks in a row. This can be a costly mistake! Failure to file your tax returns voluntarily can lead to the IRS preparing a substitute return for you, and this return will never be in your favor.
If possible, file your current year tax return on time. Then, focus on your past due tax returns. File any past due returns you can as soon as you can, and then file the remaining returns as quickly as possible.
You’ve finally caught up on your past due tax filings. Doesn’t that feel amazing? Yes, yes it does.
How do you make sure you don’t get yourself into this situation again? The best way to stay ahead of the tax filing game is to avoid the traps that cause most taxpayers to get behind in the first place:
Knowing you need to file past due taxes can take a tremendous toll on your peace of mind. Your business needs the best of you, and that’s not going to happen if you’re worried the mailman might deliver a 90-day letter at any time.
If you need to file past due taxes, make getting this done a priority in your business. Once you are caught up, make staying caught up your next priority.
Of course, the best way to avoid the stress of past due taxes is to not get behind in your tax filings in the first place—so make sure once you tie up those loose ends, you put the protections in place that’ll get you squared away for the future.
Billie Anne Grigg is a contributing writer for Fundera.
Billie Anne has been a bookkeeper since before the turn of the century. She is a QuickBooks Online ProAdvisor, LivePlan Expert Advisor, FreshBooks Certified Beancounter, and a Mastery Level Certified Profit First Professional. She is also a guide for the Profit First Professionals organization.
Billie Anne started Pocket Protector Bookkeeping in 2012 to provide an excellent virtual bookkeeping and managerial accounting solution for small businesses that cannot yet justify employing a full-time, in-house bookkeeping staff.