I Forgot to Do My Taxes Last Year. What Should I Do Now?

Forgetting to file taxes can feel overwhelming. Promptly addressing unfiled returns can prevent further complications and provide a clearer path forward.

Immediate Steps to Take

Bringing your tax obligations current begins with gathering all pertinent financial documents for the unfiled tax year. You will need income statements such as Forms W-2 from employers, and various Forms 1099, which report income from interest, dividends, independent contractor work, and other sources. If you are missing any of these statements, you can contact the issuing employer or financial institution, or utilize the IRS Get Transcript service to obtain wage and income transcripts.

Beyond income, compile records for any deductions or credits you might be eligible to claim. This could include documentation for mortgage interest, student loan interest payments, medical expenses, or charitable contributions. Having these records will help reduce your taxable income and potentially lower any amount owed. It is also helpful to determine whether you are likely owed a refund or if you anticipate owing additional taxes, as this can influence the urgency of your next actions. Finally, ensure you have your Social Security Number and your Adjusted Gross Income (AGI) from the previous tax year, which are often required for identity verification when accessing online tax services or preparing your return.

Understanding Penalties and Interest

Failing to file a tax return and/or pay taxes by the due date can result in financial penalties and accrued interest. The Internal Revenue Service (IRS) typically assesses a Failure to File penalty, which is generally 5% of the unpaid taxes for each month or part of a month the return is late, with a maximum penalty of 25% of your unpaid tax. This penalty is applied to the tax that remains unpaid after the original due date.

Separately, a Failure to Pay penalty may also apply, generally amounting to 0.5% of the unpaid taxes for each month or part of a month that the tax remains unpaid, also capped at 25% of the unpaid taxes. If both penalties apply in the same month, the Failure to File penalty is reduced by the amount of the Failure to Pay penalty, meaning the combined penalty for that month is typically 5%. In addition to penalties, interest accrues on any underpayments from the original due date until the tax is paid in full. These interest rates are determined quarterly and are compounded daily, and for individuals, the underpayment rate has been 7% per year in recent periods.

How to File a Delinquent Tax Return

Once all necessary documents and information are compiled, you can proceed with preparing your delinquent tax return. Options for preparation include using tax software, which may offer versions for previous tax years, engaging a qualified tax professional, or directly utilizing IRS forms and instructions, such as Form 1040 for the relevant year. Seeking assistance from a tax professional can be beneficial, especially for complex situations or if multiple years are unfiled.

For past-due returns, direct e-filing through the IRS system is generally not available; most delinquent returns must be submitted by mail. It is important to use the correct version of Form 1040 for the specific tax year you are filing. The instructions for each form typically include the appropriate mailing address for your region. To ensure proof of submission, consider sending your completed return via certified mail with a return receipt requested. This provides verifiable evidence that your tax return was sent and received by the IRS.

What Happens After You File

After you submit your delinquent tax return, the outcome depends on whether you are due a refund or owe taxes. If a refund is due, the IRS will process your return and issue the refund, provided your claim falls within the three-year statute of limitations for refunds. This means the return must be filed within three years of the original due date to claim any overpayment.

If taxes are owed, the IRS will typically send a notice, such as a CP14, detailing the tax amount, penalties, and accrued interest. You will then have various options for payment, including IRS Direct Pay from your bank account, debit or credit card payments through an approved processor, or mailing a check or money order. If you are unable to pay the full amount immediately, the IRS offers payment solutions such as an Installment Agreement, which allows you to make monthly payments over an extended period. Another option for those facing significant financial hardship is an Offer in Compromise (OIC), which allows certain taxpayers to settle their tax debt for a lower amount than what is owed, based on their ability to pay.

You may also be able to request an abatement of penalties if there was reasonable cause for the failure to file or pay, often by submitting Form 843 or a written request. The IRS considers factors such as death, serious illness, or natural disasters as potential reasonable cause. Throughout this entire process, it is important to maintain copies of all submitted documents, correspondence, and payment records for your personal files.