Filing a Late Tax Return

Today's tax question comes from "John Doe" in New Jersey. He asks:

"I am 26 years old and I have never filed a tax return. This has been eating at me for the past four years. I thought I was automatically a felon after the first year of not filing, and feared litigation so I kind of buried my head in the sand after that. Well no more. I finally got the courage to do an internet search for back taxes, and found your site.

It seems that there is hope yet. What do I need to do? I worked part time in 2001 - 2004, and worked full time from mid-2004 to present. I have never been self employed, have never had any investments, owned any properties, or made any income other than from the work I just mentioned. I have lived alone, renting apartments the entire time as well.

Is the only tax document I need to file back taxes a W2 from each of the years since 2001?"

There is indeed hope for you, John Doe. In fact, I would guess that you might even have some tax refunds coming your way. But you will need to act fast, because tax refunds expire after three years. Here's how to file your tax returns and protect your refunds.

Filing a late return can be stressful. And the stress is made worse because now you have several years of tax returns to prepare, instead of just one. But if you can spare a couple of weekends, you can catch up with the IRS.

The key ingredient to successfully filing a late tax return is finding all your tax documents. If you have your original W-2 forms, you are in great shape. But if you are missing any tax documents, the Internal Revenue Service can help you out. The IRS has copies of all tax documents filed under your Social Security Number. The agency usually keeps four years worth of tax documents in their computerized archive. You can call the IRS and ask for a transcript of your documents to be mailed to you. Now, here's the really important thing about these computer printouts. The printouts will not show any information related to state income tax withholding. Since New Jersey has an income tax, you should try to find your original W-2 forms or call the NJ Division of Taxation to see if they have any information about your state withholding.

You have three years to claim a refund, and this is the second most important thing to know about late returns. The three year period starts with the original filing deadline. After the three-year period is up, the IRS cannot send you a refund check. Your refund has "expired" (so to speak). Right now, your 2003 tax refund will expire on April 15, 2007. (The original deadline was on April 15, 2004, plus three years.) So if you are pressed for time, please file your 2003 tax return first, before anything else.

So far I've been taking about refunds. I'm guessing that you have a refund because your only source of income was from various jobs, and so you probably had taxes taken out of your paychecks. Here's a little known fact about late returns. If you have a refund, there's no penalty for filing the return late. That's right, no late filing penalty and no interest.

Penalties kick in only if you owe the IRS. And if you owe, the IRS will assess not just one but three different penalties. There's a failure to file penalty (a stiff 5% per month that you are late, up to a maximum of 25%). Then there's the failure to pay penalty (a much milder half-a-percent per month). And then there's interest on the taxes you didn't pay (currently at 8% annually, and the IRS sets the interest rate every quarter).

Now, here's some tricks I have learned over the years of helping many people get caught up on their taxes. If you don't have your W-2 forms and you are using the computer printout from the IRS instead, you will need to transfer all the same information on the printout to IRS Form 4852 (PDF). If you are using tax preparation software, you should add that form to your tax return and type in the relevant information. You also need to sign Form 4852, and you should attach a copy of the IRS printout (that way the IRS will know that you have a reliable source for the numbers on your tax return).

A second trick I learned is that you can find tax preparation software for older years. Here's a list of prior-year software that is available right now: TaxCut (back to 1992), TaxACT (back to 2000), and TurboTax (back to 2002). Now, each software program has it's pros and cons, but all three will suit you well for preparing your tax returns. If you are going to prepare the returns yourself, you will want to use the same brand for all the years you need to file. This way you can easily import your tax information from one year to another, saving you time from repetitive data entry.

You can also find prior year federal tax forms going all the way back to 1990 at IRS.gov.

You might also want to talk to a tax professional. Be sure to protect yourself first. Here's nine good questions to ask before hiring a tax accountant.

Let us know how everything turns out. I'll be rooting for you.

More information:

• Back Taxes (six steps for filing a late return)
• Missing Tax Documents (how to get a printout from the IRS)
• Time Limits for Refunds, Audits, and Collections (including the three-year period for claiming a refund)
• IRS Penalties and Interest (in case you owe additional taxes)
• How to Get out of Tax Debt (covers all sorts of payment arrangements)
• Tips for Finding the Right Tax Accountant (and nine important questions to asking before hiring someone)
• Haven't Filed an Income Tax Return? Here's What to Do (from the IRS)
• Frequently Asked Questions about Filing Late Returns (from the IRS)
• Prior Year Tax Forms, Instructions, and Publications (from the IRS)

Do you have a tax question? Visit the Ask a Tax Question page. Disagree with my answers? Post your comments in the Tax Forum.

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