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.
How to File Past Due Taxes
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!
You Have the Forms, Now Get the Right Documents to File Your Past Due Taxes
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:
- Option 1: You could ask your employer—or your spouse’s employer—for a copy of the W-2s from previous years. Employers should keep these records for at least four years, and many employers retain payroll tax records much longer. Asking your employer for a copy of your W-2s should be your first course of action. This also holds true if you were a 1099 payee. Ask the business that paid you for a copy of your 1099 before proceeding to Option 2.
- Option 2: If you can’t get a copy of your W-2 or 1099 from the payer, either because the payer is unreachable or because you have past due taxes that fall outside the record-keeping requirements, you can complete Form 4506-T to request a transcript from the IRS. That’s right—the IRS already knows you haven’t filed your tax returns, because they get W-2s and 1099s every year.
In case you can’t get your W-2 or 1099 (Option 2)…
- IRS transcripts only include federal tax information. If you live in a state where you must file a state or local tax return, you’ll have to contact those tax authorities and ask if transcripts are available.
- The IRS typically doesn’t have transcript information available until the year after the forms were filed with the IRS. If you’re in a hurry to file your past due taxes, this will slow you down.
- If you were a 1099 payee, the business that paid you only had to report the payments if you earned $600 or more. You’ll need to refer to your bank statements to get your complete income picture.
Catch Up On Your Past Due Taxes Now—and Get Ahead for Later
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.
How to Make Sure You Get Your Tax Returns In On Time Next Year
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:
- Lack of good records. Lots of taxpayers put off filing because their records aren’t in order. Setting up a good bookkeeping and recordkeeping system—and committing to keeping them up to date—will help you avoid this trap.
If possible, use cloud-based bookkeeping and recordkeeping systems. Cloud-based solutions ensure your books and other records won’t be lost in the event of a disaster, plus they are easy to use, which helps you keep things up to date. Hiring a bookkeeper or outsourcing your bookkeeping to a reputable bookkeeping practice or firm is also a smart move, especially if you know you won’t keep your bookkeeping up to date on your own.
- Lack of expertise. If you’re going to spend your free time learning to do something new, make it something enjoyable. For most of us, that would be learning macrame or fly fishing… not learning the tax code.
Invest in a good tax advisor. They’ll not only save you from spending the time trying to file your taxes yourself, but also save you more money than you pay them over the course of your business relationship. Plus, when you use a reputable tax advisor, you can rest assured they will help resolve any issues that may arise with the IRS. You can’t put a price tag on that kind of peace of mind.
- Lack of money to pay the tax bill. There’s nothing scarier than owing more in taxes than you have in your bank account. The best way to avoid this trap is by proactively saving for your taxes. A cash management system like Profit First can help take the guesswork out of how much money to set aside for tax payments. While this may not make paying your taxes fun, it will at least take some of the sting out of it.
If You Protect Your Business From Filing Late, You’ll Protect Your Peace of Mind, Too
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
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.