One of my clients, whom we'll call Ron, came to me feeling completely overwhelmed. He hadn't filed tax returns for several years, and the situation had reached the point where the state was levying his bank account.
To make matters worse, the state had estimated what they believed he owed based solely on the 1099-MISC forms they had received. They didn't know what his business expenses were, so they assumed every dollar reported on those forms was taxable income. As you can imagine, the amount they calculated was much higher than it should have been.
The first thing I did was sit down with Ron and learn his story. Before deciding on a plan, I wanted to understand what had happened and how we got to this point.
After our conversation, I pulled his IRS transcripts to see what they would tell us. The transcripts confirmed that no federal tax returns had been filed since 2018.
Ron was self-employed, so our first job was rebuilding his business records. We worked together to determine his income and expenses for each year from 2018 through 2024. That involved several emails back and forth as we clarified transactions and filled in the missing pieces.
Once I completed the profit and loss statements for each year, I was able to prepare the federal tax returns.
Many people are surprised to learn that the IRS generally requires only the most recent six years of delinquent tax returns to bring a taxpayer back into filing compliance. The state, however, wanted returns for every missing year. Since the state returns are based on the federal returns, we prepared the federal returns first and then completed the state returns.
The results were exactly what we had hoped for. After preparing the returns, the amount Ron actually owed the state was significantly lower than what the state had estimated.
That was a huge relief.
Once all of the federal and state returns were filed, Ron finally had answers. Instead of wondering what might happen next, he knew where he stood and could begin moving forward with a plan.
One of the best parts of my job is watching that weight come off someone's shoulders.
People often spend months, or even years, worrying about what the IRS or the state might do. While those concerns are real, I've found that the fear of the unknown is often worse than finally facing the problem.
When tax returns aren't filed, the IRS and state taxing agencies don't simply forget about you. Instead, they often estimate what they believe you owe using information reported by employers, banks, and businesses. What they don't know are your deductions, business expenses, or other information that could significantly reduce your tax bill.
That is why estimated tax assessments are often much higher than the amount actually owed.
If you have unfiled tax returns, don't assume the amount the IRS or your state says you owe is correct. You may owe less than you think, but you'll never know until the returns are prepared correctly.
If you're feeling overwhelmed, you're not alone. I help taxpayers sort through situations like this every day and explain the process in plain English. Feel free to contact me at candy@numbercruncherllc.tax or use this LINK to schedule a time for us to visit. I will listen to you and see what I can do to help you.
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