Are you behind filing tax returns and wondering how far you need to go back to get caught up? If so, you're not alone—many people find themselves in that situation each year.
Before jumping into filing back taxes, it's essential to understand where your tax obligations stand.
In this blog post, we'll discuss how far back the Internal Revenue Service (IRS) allows you to file taxes and what strategies make the most financial sense when tackling past-due tax returns.
What is the statute of limitations for filing taxes in the United States?
Whether you owe money to the IRS or are due a refund, there's a limited window in which either party can collect what's owed. This deadline is known as the statute of limitations and differs depending on the situation.
Default statute of limitations
The general statute of limitations gives the IRS three years to audit your tax return and assess back taxes against you. That three-year window starts on the day you file your tax return or the original due date of that return, whichever is later.
For example, say you file your 2022 tax return on March 1, 2023. It's not due until April 18, 2023, so the three-year statute of limitations begins on April 18, 2023.
On the other hand, if your return was due April 18, 2023, but you didn't file until July 12, 2023, the three-year window would start on July 12, 2023.
Extended statute of limitations
The default three-year statute of limitations increases to six years if the IRS can prove that you failed to report income on your tax return AND the omitted income exceeded 25% of the gross income you reported that year.
For example, say you filed your tax return, claiming $50,000 of W-2 wages. However, you neglected to report any income from your side hustle, in which you earned $15,000 managing social media for a few local businesses. Because the omitted income is more than 25% of the gross income you reported on your return, the IRS has six years to come after the unpaid taxes on your side hustle.
Fraud or no return
In some cases, the IRS doesn't have a deadline for assessing taxes. This would be the case if you file a fraudulent return or don’t file a tax return at all. The IRS has unlimited time to come after you for back taxes, interest, and penalties in these situations.
Collecting assessed taxes
You may have heard that the IRS has ten years to collect your tax debt. This deadline is known as the Collection Statute Expiration Date (CSED). However, the clock doesn't start ticking on this 10-year window until the IRS makes an assessment.
For example, say you filed a return in 2017. The IRS discovers you underreported your income by more than 25% in 2022 and assessed tax against you that year. The IRS then has ten years (until 2032) to collect your unpaid taxes.
In some cases, the IRS can extend that 10-year collection period. Some exceptions to the 10-year collection window include pending bankruptcy, collection due process hearing, Offer-in-Compromise applications, or tax court litigation.
Timeline for claiming tax refunds
The above deadlines mostly assume that you OWE taxes with your return. But what if you're due a tax refund? There's a time limit on claiming it.
By law, you have a three-year window from the original due date of your return to claim a tax refund.
For example, if you don't file your 2022 return due on April 18, 2023, you have until April 18, 2026, to file and claim your refund.
If you miss that deadline, any unclaimed refunds go to the U.S. Treasury, and you lose the opportunity to claim the refund or apply it to another year in which you owe income tax.
The IRS can also hold refund checks when two subsequent returns are missing. For example, if you file your 2022 return in 2025 but haven't yet filed returns for 2023 or 2024, the IRS may hold your refund in case you owe tax for those unfiled years.
Remember that the statute of limitations outlined above pertain only to federal income tax returns. The statute of limitations in any state where you have a filing requirement may differ.
How do you determine how many years you can file back taxes for?
If you want to get caught up on your tax filing obligations, there are a few steps to take to decide how many years you can and should file back taxes for.
Determine whether you owe tax or are due a refund
First, it's a good idea to determine whether you would have owed money or received a refund for those years.
Let's say you haven't filed a tax return for six years, but you had little to no income during that time, so you wouldn't have owed tax anyway. In that case, you should just file returns for the years in which you can still claim a tax refund.
Determine if the IRS filed a Substitute for Return
However, it's a little more complicated if you owed money to the IRS for the years in question.
In that case, your first step should be determining whether the IRS filed a Substitute for Return (SFR) for those years. An SFR is like a tax return that the IRS files on your behalf.
While having the IRS file returns for you might sound convenient, remember that the IRS prepares the return based only on information it received from W-2s, 1099s, and other available tax documents. Typically, those forms contain information about your income but not tax deductions or credits. So the IRS won't include business expenses, charitable donations, out-of-pocket medical expenses, and other tax write-offs on your SFR.
As a result, you'll likely owe significantly more under an SFR than you would if you filed a return with all your available deductions and credits.
If the IRS filed a substitute return, you should have received a notice from the IRS. If you don't respond, the IRS will issue a notice of deficiency and begin the collection process, which might include levying your wages or bank account or placing a lien on any property you own.
Fortunately, if the IRS filed an SFR on your behalf, you don't have to accept its assessment. You can file returns for those years, claiming any available deductions or credits. This will likely decrease your tax bill and any penalties or interest.
If you're unsure whether the IRS prepared an SFR on your behalf, you (or your tax advisor) can reach out to the IRS and ask how far back they want you to file returns.
In most cases, the IRS won't require you to file more than six years of past-due tax returns.
How to file back taxes
To file your back taxes, you may want to order a few IRS transcripts to help with preparing a complete and accurate return:
- Tax Account Transcript. This transcript shows any payments on your account for the current and nine prior tax years. You can use this transcript to verify any tax withheld, estimated taxes paid in, and overpayments applied to a subsequent tax year.
- Wage and Income Transcript. These transcripts show information your employers, financial institutions, or other payers reported to the IRS for the current and nine prior tax years.
You can order IRS transcripts online or by calling the IRS at 1-800-908-9946.
Once you have all the information you need to file your returns, you can download the forms from IRS.gov or use DIY tax filing software.
When it comes to figuring out how to file back tax returns, many taxpayers find that enlisting the help of a qualified tax professional makes the process simpler and more efficient. Professional tax preparers are familiar with the latest IRS regulations. They can guide you on the best strategies for filing back taxes, negotiating any IRS penalties, and setting up a payment plan.
If you choose to go it alone, make sure that you take your time to ensure accuracy when filing returns—any errors could result in fines or penalties from the IRS.
How can Taxfyle help?
The tax filing process can be a bit overwhelming, especially when figuring out the number of years you need to file back taxes. Thankfully, if you're in a situation where you need to file several years of back taxes, you don't have to handle them yourself.
No matter what your tax issue may be,From helping you to figure out how far back you need to go to preparing your necessary documents and negotiating your tax bill with the IRS, Taxfyle can connect you to a Tax Professional who can get you back in the IRS's good graces in no time.
