Despite our best intentions, sometimes we’re late filing our taxes. Sometimes it’s only a few months. Sometimes 2, 3, 4 years go by. Sometimes it’s more like 9 or 10. (It happens more often than you might think!) What do you do when you’re late filing your income tax returns? Here are a few things to consider:
- It’s generally not a big deal if you know in advance that you can’t make the April 15th deadline. The IRS (and Oregon) offer just about anyone who asks for it a 6-month extension, which will delay any late-filing penalties. If you expect that you’ll owe taxes, you should send in a payment with your extension request in order to avoid late-payment penalties and interest. [That’s worth repeating: the extension delays the late-filing penalty, but you will still be assessed a late-payment penalty and interest if you haven’t paid in full by April 15, regardless of whether you file an extension.] Extensions are easy to file; see the IRS website here. Generally speaking, if you file a timely extension request with the IRS, you don’t need to also file an extension request for Oregon. (See Oregon Form 40-EXT for exceptions to that general rule.)
- If you don’t file an extension, or if you do file an extension but miss the October 15th extended deadline, then your tax return is officially late, and you will begin accruing late-filing penalties, in addition to the late-payment penalties and interest. (See here for an explanation of late-filing penalties from the IRS; for Oregon, you’ll need to look through the instructions for Form 40, which can be found here.) Generally, if you don’t owe very much, and if you’re not very late, then the penalties and interest won’t be huge and you shouldn’t let them scare you off. Nonetheless, the sooner you file the better!
- If it’s been more than 2 or 3 years since you’ve filed a tax return, things start getting more difficult. You may start getting letters from the IRS or Oregon asking you where your returns are, or they may have filed substitute returns on your behalf (based on whatever information they’ve gotten from your employers) and are asking you to pay the balance due plus penalties and interest. At this point, it’s critical to get things taken care of as quickly as possible; you don’t want them to start garnishing your paychecks or levying your bank accounts, property, or other assets. But even at this stage, the IRS and Oregon are generally far more cooperative then you might expect; a simple phone call to let them know that you plan to file the returns within, say, 30 days, is often enough to convince them to temporarily suspend the collections process while you get the paperwork done. I can usually handle these communications for you, if you’re not comfortable with it on your own.
- If you’re filing several years of tax returns and don’t have your W-2s, 1099s, 1098s, and so on, it’s often possible for me to get these records for you from the IRS. It’s a bit of a process, but it can be a real time-saver in the long run. If you’re self-employed, or have rental income or other tax-related income and expenses that aren’t reported to the IRS, then you’ll have to re-create these numbers to the best of your ability. (I can help you with this, but you should know that this is generally the most painful part of the process…)
- If you owe more in taxes than you can pay, you may be eligible to get on an installment payment plan with the IRS and/or Oregon. Unless there are unusual circumstances, they generally make this very easy! You can often set up a plan online or over the phone, without filing any additional forms.
- If your income is too low to cover the required installment payments, there are still some options to pursue before the IRS starts seizing your assets. For example, you may be eligible for an “Offer in Compromise”; this is a process that involves providing the IRS with detailed information about your assets and income, which the IRS uses to determine whether to offer you a reduced payment amount. If you’re eligible, this can be a huge help; more often than not, however, the IRS denies eligibility. Offers in Compromise are not something I specialize in, so if you’re interested in pursuing this route, I can’t be of much help.