Articles Posted in Unfiled Tax Returns

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We often find when a client has not filed in many years that the most important to first address is to gather the tax data needed to prepare the income tax returns.

If the client was an employee during the time period, we can get their W-2 income tax data from the IRS. Typically, then the only items missing would be itemized tax deductions and information about tax dependents.  We would also need their spouses data if we are filing joint tax returns.

If the client was self employed, the process is much more involved. We have to calculate the business income and expenses related to the self employment income. This often means trying to obtain credit card statements  and bank statements to help determine the business expenses, and then start gathering the receipts to back up the expenses. For the income earned, we can usethe bank statements and review the deposits made. With this information, and the information above, we would then be able to prepare the income tax returns.

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Often clients meet with us and they are suffering from a tax mess. The IRS (or NYS Tax Dept.) is pursuing them and they have often fallen behind in preparing tax returns or making tax payments. One aspect of a tax attorney’s job is to help figure out the mess and assist people with their tax problems. To that end goal, its important for potential clients to bring a summary of their tax problem. This could include information of the tax return years not filed, general approximate amount of the tax liability, and the type of taxes owed (income, sales tax, payroll tax). Along with this information, bring any letters you received from the IRS or NYS Tax Department. The value of the tax letters is that it states the amount of the tax debt, who it’s owed to, the tax years and type of tax owed. Most clients do not understand these letters, so bring them to the meeting and we can quickly gather that information. Its also helpful to have an idea of the value of your assets and the amount of debts you have. Estimates are fine, but this information helps us decide the best resolution of your tax case (i.e. a tax payment plan or an offer in compromise). On the flip side, it would not be helpful at the first meeting to bring boxes of information since we do not need all that details at this point. The overall key is to spend a few hours before the meeting to organize yourself and this will pay dividends at the meeting.

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Did you let Tax Day come and go without filing a return or paying what you owe to the IRS? If so, you are certainly not alone, but that doesn’t make the consequences that you face any less serious.

Chances are that you didn’t file a tax return because you can’t afford to pay the money that you owe. Maybe you don’t even know how much you will owe, you just know that you can’t afford to pay the IRS anything.

Or maybe this isn’t the first time you have avoided filing a tax return, and you got away with it in the past so you figured you would just try to avoid paying again this year.

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When a New York resident has failed to file a federal tax return in the past, he or she may try to ignore the issue and hope that it goes away. But it won’t be long until the Internal Revenue Service catches on and comes after the delinquent taxpayer with guns blazing.

For that reason, it’s best to take advantage of the IRS’s “voluntary disclosure” policy, which allows individuals to file unfiled back tax returns, almost always without the risk of criminal prosecution.

However, when taking part in this program, it’s extremely important that the tax returns are completed accurately because the returns will be under scrutiny and are more likely to trigger a criminal investigation if errors are detected.

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Sometimes we see cases where a couple is getting divorced and they have unfiled tax returnsfor many years. The question then raised is whether the unfiled tax returns should be filed as joint tax returns or if the income tax returns should be filed as married filing separate returns for the back tax years.

The reason it is often best to file a joint income tax return vs. a married filing separate tax return is the overall tax bill will likely be lower with a joint tax return filing. This is especially the case where one spouse earns a lot more income than the other spouse. In a divorce, it is common that the parties are not in a cooperative mood, so one has to be careful to make sure that each spouse understands that taxes could be higher in total if they do not cooperate with a joint tax return filing.

If one spouse files a separate return for the unfiled tax return years, and they itemize deductions, then the other spouse is forced to itemize their deductions as well. If a couple has unfiled tax returns, this decision will have to be made for each year in question. As this relates to children, if the taxpayers are filing separate tax returns the decision has to be made as to which parent can take the child as a deduction. Usually the parent with the custody of the child gets the deduction for that child. If both divorced spouses can take the child on their tax return as a dependent, the tie breaker rules cause the taxpayer with the higher income to take the child as a deduction. The problem with this is that other tax rules limit the benefit of the deduction for the child as one income goes higher, therefore, you need to be careful with this and this is why it might be better to file joint tax returns for the years of unfiled tax returns.

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You may think that having unfiled tax returns is a disaster in itself, but what I have in mind is the effect on unfiled tax returns, and the data needed to file an accurate tax return when you are the victim of a natural disaster.

Storms and natual disasters pose serious tax issues for taxpayers and tax attorneys alike. As a result of this, we encourage taxpayers to safegaurd their tax and business records against natual disasters by taking some common sense steps.

1. Create a electronic copy of the records. This record should be kept in a safe and way from the original set of documents. Cloud storage may be the best solution. Maintaining a back up copy of bank statements, tax returns, receipts, in case there is a future audit.

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Individuals who choose not to file their tax returns will be located by the Internal Revenue Service, but it will take time. Individuals may choose not to file their income tax returns with the IRS or New York State for many reasons, not limited to; not being able to pay tax debts owed, they believe paying taxes is voluntary, or just deciding not to. No matter what the reason for non-filing is, the IRS will want any back tax debts owed.

Non-filing can be a crime when back taxes are owed. It can result in penalties, fines, and the possibility of prison. The first step to solve this tax problem is to file any unfiled returns. This needs to be done even if you are unable to pay for the tax debt owed, as well as fees and interest that might be added to the debt. If you are due a refund, you may only receive the money for the previous three years. After the three year window, any refunds you may be owed will not be awarded in reducing your back tax debt liability.

Depending on each individual case, the consequences for non-filing vary. However, in most cases non-filers who take action by filing returns and paying back any taxes owed will no longer have the IRS criminal process after them.

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If you have not filed your federal income tax return for any reason, there is a solution. Filing past due returns is not an overly complex process. Taxpayers should file tax returns every year, and for all years that they are due, regardless if they are able to make a full payment with the return.

Depending on the circumstances for each individual tax payer, there are options to payoff balances. Though a full payment of taxes will save you money by eliminating penalties and interest, some taxpayers may qualify for a payment plan. Payment plans allow you to make a monthly payment through an installment agreement. If you are unsure which option works best for you, you should consult with an experienced New York Tax Attorney.

If you continue to not file your past due returns, the Internal Revenue Service will start to be proactive. The following might happen:

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