It’s not too late to file your taxes.
Life is never put on hold, even for tax season. Before you know it, the April and even October deadline fly right by. Then, you forget to file it next tax season and then the season after that.
However, although the deadlines go by, you should still file your prior year tax return. Here are some reasons why.
1. You’re getting a refund
One of the most important things to remember is that the IRS does not wait for anyone. According to the IRS, you have a three-year statute of limitations for refunds; meaning you can only claim tax refunds going back three tax years within the original April due date.
For example, if you want to claim a 2016 tax refund, your last chance to claim it is April 15, 2020. This means you must file by that date to get your refund. Therefore, any tax years going back from 2016 cannot be claimed.
Check out our helpful tax calculators to determine your refund for relevant tax years.
2. The IRS can hold your current year refund
If you want to get a refund for a current tax year, the IRS can hold your refund until you file your prior year tax returns.
For instance, if you want to claim your 2019 tax refund and you didn’t file for 2018, 2017 or any other prior years, the IRS can wait until you file or pay those past-due taxes.
3. Substitute Return
If you don’t file your prior year taxes, the IRS will assume that you owe taxes. In that case, you want to avoid them filing a substitute return for you. Their substitute returns do not account for any expenses or credits you’re eligible for.
For instance, if you receive a Notice of Deficiency CP3219N (90-day letter) proposing a tax assessment from the IRS, you have 90 days to file your past due tax return.
4. To stop accumulating penalties
If you owe taxes to the IRS and you haven’t begun the payment process, you may find yourself looking at hefty penalties and to top it off, interest.
The failure-to-file and failure-to-pay penalties can reach up to 25% of your tax due to the IRS; including the interest rate for that year.
5. You file for FAFSA
Going to college? If you receive financial aid to pay for your tuition, your institution will ask you for the tax year that’s two years from the current year.
In other words, if you’re filing a 2019–20 FAFSA form, you will need your 2017 prior-year tax return.
6. You own a business
You must report your federal tax returns for the income you earn. It is then reported to the Social Security Administration for your Social Security retirement or disability benefits.
If you don’t file your prior year tax returns, you’re essentially telling the SSA that there’s nothing to report. It would be in your best interest to file your prior year tax returns as soon as possible.
7. You’re buying a home
In order to buy a home, qualify for a mortgage, or refinance your home, you must show your federal tax returns.
At most, you’ll need to go back two tax years to show your tax information.
8. Applying for loans
Mortgage lenders, brokers, and other financial institutions require your past tax returns. For example, if you want to refinance or buy your home (as said above), get a loan for your business, and apply for federal aid for a higher education, you need to take care of your unfiled taxes.
Most importantly, you want to avoid at all costs the IRS collection process if you have unpaid taxes or if they determine from your unfiled tax returns that you owe them. This could be as a result of a substitute return.
Here’s what the IRS can do.
- Garnish your wages/earned income
- Levy your retirement accounts, dividends, bank accounts, licenses, rental income
- Levy your life insurance
- Seize your personal property (car, boat, house, etc.)
- Sell your personal property
You should file as soon as possible if you’re in this situation.
10. The IRS can help you
Luckily, the IRS lets you request an installment agreement to set up a payment plan monthly. They will accept your request if you meet the following:
- Owing $50,000 or less in combined tax, penalties and interest
- Filing all of your required tax returns
- You owe less than $100,000 in combined tax, penalties and interest
You can also prepare this form to mail with our site by filling in some quick information.
Ready to file?
With all of the reasons to finish your prior year tax returns, why not get started now? All you need to do is create an account, enter your tax information, and submit your account to us.
Then, we provide you with your tax return to mail to the IRS and/or state!
Tags: 2016 refund, 2017 tax year, 2018 tax return, collections, CP3219N, IRS payment plan, IRS penalties, levy, past due, prior year state taxes, prior year tax, substitute return, tax refund, taxes owed, W2, Wage and Income Transcript