A Word Of Relief For The Tax Non-Filers!
It is absolutely okay if you haven’t filed your tax returns in the last several years and now want to enter the tax system safely. “It is better late than never” and IRS believes this phrase. That is why they are allowing people to enter into the tax system with a special provision. IRS files tax returns for everyone and they are called Substitute Filed Returns (SFRs) and they are based on third-party information received by them every year in the month of January. However, the tax amount is considerably higher than what you may have prepared by yourself. This is done to attract your attention and make sure that people file their tax returns on their own. The tax liability from SFR is valid till the point you submit proper filing and it cannot be discharged in bankruptcy.
In order to start with the process you must have all the data to prepare tax returns yourself, but it cannot be filed electronically for the past years. In case you are not having the data then you may have to collect data from IRS through third-party documents like Forms W2, 1099, K-1, etc. The transcripts for third-party documents can be ordered by Form 4506, but it may take some time. We suggest hiring a tax professional who will arrange all the paperwork and guide you through the process. There are private agencies providing dedicated resources for fulfilling all the formalities on your behalf so that all the work is done in correct manner. For the years when you were self-employed, you may have to complete the Schedule C of Form 1040 by compiling you income and expenses. In case you are not having the records, the IRS will allow reasonable estimates based on your existing Schedule C.
In addition to all of the above, we suggest filing tax returns on time so that you don’t have to go through the hard way of doing it all over again.