Every year, most persons are obliged to file an income tax return. In truth, the Internal Revenue Service (IRS) maintains track of people who are supposed to file but do not, and the IRS has the authority to prosecute those who do not file. That involves implications and problems in more serious circumstances.
In some situations, if you fail to complete back tax returns, the IRS assesses fines and interest, delays refunds, or files a return that excludes any credits or deductions you may be entitled to. Understanding how to submit the previous year’s taxes is critical. While learning the ins and outs of submitting past year taxes might be difficult, it is worthwhile. You can get the help of Accotax Quebec back taxes for this.
Why should you submit back taxes?
Filing back tax returns may assist you in doing one or more of the following:
- Claim a refund
One practical reason to submit a back tax return is to determine if the IRS owes you money. While many people have federal income taxes deducted from their paychecks, occasionally too much is deducted. In some situations, completing a tax return may result in a tax refund deposited into your bank account.
- Stop late penalties and interest.
Even if you can not pay the sum you owe, filing a tax return on time is critical to prevent or reduce penalties. If you do not file your return, you may be compelled to pay an extra 5% of the unpaid tax you were obliged to declare for each month your return is late, up to a maximum of five months. There may also be minimum penalty limitations.
The IRS imposes yet another penalty for failing to pay your taxes. If you file on time but cannot pay what you owe in full by the due date, you will be charged an extra 0.5% of the tax not paid on time for each month or part of a month you are late. These costs will accumulate until your debt is paid in full or the penalty exceeds 25% of your tax, whichever comes first.
The IRS also assesses interest on past-due taxes. Unlike fines, interest continues to accrue indefinitely, unlike failure to file and failure to pay penalties.
- Have your tax returns ready for loan applications.
Certain loans, such as mortgages and business loans, may demand income evidence as part of the approval process. Filing your tax returns before applying for a loan makes the procedure more smoothly.
The IRS prefers that you file all back tax returns for unfiled years. The IRS normally only wants you to file the latest six years of tax returns to be deemed in good standing. Nonetheless, the IRS can sometimes look back for more than six years. It is best to get the help of an expert to avoid any problems.