I Haven’t Done My Taxes in 2 Years. Where Should I Start?

Falling behind on tax filings can be a daunting experience, but it’s an issue many individuals face. Whether due to personal circumstances or oversight, neglecting taxes for multiple years can lead to serious complications. Taking the first step toward resolution is crucial and can set you on the path to compliance and peace of mind.

Locating Required Documents

Rectifying your tax situation begins with gathering necessary documents. Start by collecting W-2 forms for annual earnings and withholdings. If self-employed or earning additional income, 1099 forms are essential to provide a complete view of your income. These documents form the foundation of your tax return.

Records of deductible expenses, such as receipts for business costs, medical bills, mortgage interest, and charitable donations, are also key. These can significantly impact your taxable income and potential refunds. For those with investments, brokerage statements are necessary to report dividends, interest, and capital gains or losses. Keeping these records organized helps streamline the filing process and minimizes errors.

Accessing past tax returns can be useful, particularly if you need to amend previous filings or verify carryover amounts like capital losses. The IRS provides transcripts of past returns, which can be requested online or by mail. Additionally, bank and credit card statements can help verify income and expenses to ensure accuracy.

Filing Past Returns

Once you’ve gathered all documents, file each past return. Each tax year requires separate filings using the appropriate forms for that year. Prior year forms and instructions are available on the IRS website. Using the correct forms ensures compliance with the tax laws and regulations in effect at the time.

Tax software can simplify this process, as many programs support prior-year filings and include updates on tax law changes. These tools can help identify missed deductions or credits. If the process feels overwhelming, consult a tax professional. An experienced accountant can ensure accuracy, provide guidance, and potentially uncover opportunities for tax savings.

Late Filing Consequences

Failing to file taxes on time can result in significant penalties. The IRS typically imposes a late filing penalty of 5% of unpaid taxes for each month or part of a month the return is late, up to a maximum of 25%. Interest also accrues daily on both unpaid taxes and penalties until the balance is paid in full.

Late filing can also mean losing eligibility for certain tax benefits. For example, the Earned Income Tax Credit (EITC) requires timely filing, and missing the deadline can result in forfeited refunds. Additionally, if you are due a refund, failing to file within three years of the original deadline may result in losing that refund entirely, as the statute of limitations for claiming refunds expires.

The consequences extend beyond financial penalties. The IRS may file a lien against your property, which can affect your credit score and complicate future financial transactions like securing loans. Repeated failure to file taxes could trigger an audit, increasing stress and potential expenses. Some states also impose their own penalties for late filing, adding further complexity.

Payment Arrangements

If you owe back taxes, evaluate your financial situation to determine what you can realistically pay. The IRS offers several options, including installment agreements that allow taxpayers to pay over time. Terms vary based on the amount owed and your ability to pay, with options for direct debit or payroll deduction.

For those facing significant financial hardship, the Offer in Compromise (OIC) program may allow eligible taxpayers to settle their debt for less than the full amount owed. Eligibility depends on factors such as income, expenses, and asset equity. While the process requires detailed financial disclosure, it can provide relief for qualified individuals.

Communicating With Tax Agencies

After filing past returns and arranging payments, maintain clear communication with the IRS or your state tax agency. Proactively reaching out demonstrates your intent to resolve outstanding issues and increases the likelihood of leniency or flexible payment terms. Waiting for the agency to contact you can lead to more aggressive collection actions, such as wage garnishments or levies.

When contacting the IRS, have relevant information ready, including your Social Security number or Taxpayer Identification Number, copies of filed returns, and any correspondence from the agency. If you’re unsure of your total liability, request an account transcript from the IRS, which provides a detailed record of your tax history, including balances owed. For state taxes, consult your state’s Department of Revenue website for specific requirements.

If your situation is complex or involves significant liabilities, consider authorizing a tax professional to represent you. Filing Form 2848, Power of Attorney and Declaration of Representative, allows a CPA, enrolled agent, or tax attorney to communicate with the IRS on your behalf. This can be particularly useful when dealing with audits, liens, or other enforcement actions, as professionals are skilled in negotiating with tax authorities and navigating procedural complexities.