How far back can I go to get a tax refund?

How far back can I go to get a tax refund?

While it’s recommended to file your taxes each year by the deadline regardless of whether you’re expecting a refund or not, many people neglect this responsibility. However, like all other choices you make in life, there are often consequences of your choices that you cannot escape. So if you are trying to account for the years that you failed to file your taxes, it is important that you know what you can expect.

In terms of your federal taxes with the Internal Revenue Service, you can go back up to three years from the date that you were supposed to have filed by and still receive a full refund. If you are trying to obtain a federal refund any years farther back than three years ago, your efforts will not be successful. Also, if you try to e-file a federal tax return from a year in which the deadline for filing has already passed, you will be required to mail your return to the IRS instead of using an e-file service. Be prepared to wait 12 weeks or more for the IRS to process a late return. In other words, if you are expecting a refund, don’t count on receiving it anytime soon.

The three-year limit also applies to any amendments to years that you filed incorrectly the first time. However, keep in mind that amended returns are also not allowed to be filed using an online service. Instead, the only method that the IRS will accept for an amended return is by submitting Form 1040X in paper through the mail.

In terms of state taxes, though, your ability to receive a tax refund for past years that you neglected to file for depends on the state in which you reside. So if you are attempting to file your state taxes for past years and expecting a refund, you should check the laws for your state to see if a refund is still a possibility.

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What happens if I don’t file my taxes?

What happens if I don't file my taxes?

We’re now in June and the difficult time of April is long gone with all of its stresses for many, what with the mad rush to get those income taxes filed on time. In fact, there are many who don’t—according to statistics, more than 10 million people file for extensions every year. But what happens to those who simply don’t bother to file their taxes at all?

Filing Late Without an Extension
Those who fail to file their taxes by the April 15 deadline are subject to a “failure to file” penalty. This starts at 5 percent of whatever you owe, with a cap of 25 percent of the total tax bill. After 60 days, the penalty is $135 or 100 percent of whatever was owed.

If you’re owed a refund, there’s no failure to file penalty; however, you won’t get your refund either (obviously). Further, you’ll only have three years after that to claim the refund.

Filing Late With an Extension
While the extension will give you until October 15 to file, there are trade-offs. If you owe on your tax return, a late fee of 5 percent will begin to pile up, beginning on the first day that you’re late. If you’re hesitant to file because you owe, you’re better off filing anyway and setting up a payment plan.

Filing on Time, But Failing to Pay
If you file by April 15 but haven’t paid the full amount due, you’ll still be charged a late fee—but only at a quarter of a percent per month, as long as there’s a payment plan in place.

Failing to File
If you don’t file at all, you’ll be charged the 5 percent “failure to file” fee, plus .5 percent for every day you’re late, and an additional payment fee.

In short, if you’re thinking of ignoring tax day this year, you should reconsider. The benefits of filing on time far outweigh any inconvenience. In case of illness or some other trauma, consider hiring a CPA for assistance.

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Is It Possible To Purchase A Home Without Submitting Tax Returns?

Is It Possible To Purchase A Home Without Submitting Tax Returns?

The average mortgage applicant understands how the process works. When an application is submitted, lenders will verify information and consider the merits of the application. During this process, lenders perform background checks and analyze an applicant’s financial situation. Most lenders obtain tax transcripts from the IRS, but not everyone wants to, or can, submit tax returns in this situation.

A Different Situation For Each Applicant

Some applicants work for themselves and don’t receive a W-2. Others work with and get paid in cash rather than through checks or bank transfers. On top of that, some individuals simply don’t want to supply so much information to a lender. They might prefer to avoid disclosing their income and other financial information. These situations are somewhat rare. Still, solutions are available for individuals here.

No Doc and Low Doc Mortgage Loans

First and foremost, applicants should understand most major banks won’t accommodate these situations. Only smaller lenders or those that provide riskier loans will consider such an applicant. “No Doc” and “Low Doc” loans are sometimes available to prospective home buyers. With these loans, a given applicant can expect to receive a high-interest rate and a lower-than-normal maximum loan amount, among other downsides.

Excellent, and we mean excellent, credit is required to apply for these loans. A No Doc loan allows someone to avoid submitting tax returns or transcripts. However, they’ll still need to submit to a credit check and prove a source of income. Such loans don’t act as shortcuts for obtaining a mortgage loan. Many applicants might even find this option more difficult to receive approval for compared to traditional mortgage loans.

In the end, No Doc and Low Doc mortgage loans are excellent options for certain borrowers. Individuals in the right situation can receive loan approval when they otherwise wouldn’t through a traditional bank or financial institution. Someone that has an impeccable credit history and a high level of income should consider this solution for buying a home.


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Do Mortgage Lenders Verify an Applicants’ Tax Returns with the IRS?

Do Mortgage Lenders Verify an Applicants' Tax Returns with the IRS?

Mortgage lenders mandate that borrowers meet strict income requirements for a given loan. Countless loan applications are denied because applicants cannot meet these requirements. Similarly, lenders deny mortgage applications when they cannot verify income information. Prospective home buyers often wonder whether lenders verify income figures and sources. Every mortgage lender verifies this information with various sources, including the IRS.

How Mortgage Lenders Obtain Tax Transcripts For An Applicant

A given lender cannot afford to be lax during the verification process. In fact, mortgage lenders often request tax transcripts from the applicant. The applicant doesn’t send these transcripts directly to the lender, though. Instead, he or she agrees to authorize the Internal Revenue Service to send these transcripts over to the lender. From there, an applicant fills out Form 4506-T (Request For Transcript of Tax Return).

What is a Form 4506-T? 

Form 4506-T is required to let the IRS know an entity has permission to receive a taxpayer’s transcripts. Fortunately, the form is available both online and in mailable paper form. When the IRS receives this form, transcripts will be sent directly to a mortgage lender within 10 business days. Taxpayers pay nothing for this service, and the form itself takes minutes to fill out and submit to the agency.

No mortgage lender will consider an application without receiving tax transcripts. These transcripts must come from the Internal Revenue Service, and not the mortgage applicant. Plus, a lender will verify other income information submitted alongside the tax transcripts as well. Pay stubs and other sources will be verified against tax transcripts to ensure complete honesty and transparency in an application.

Lenders want to avoid approving mortgage loans that could cost them money later on. Therefore, each and every lender verifies an applicant’s income during a given period. A lender expects a mortgage applicant to have the means to pay the mortgage. No bank or financial institution wants to take the risk someone will default on their loan. This helps explain why transcripts must be sent from the IRS and verified right away.


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Can you purchase a house if you owe taxes?

Can you purchase a house if you owe taxes?

To a certain level, mortgage lenders do not view debt as a no-go on offering you a home loan. Collections and judgments from private entities hurt, but nothing hurts as bad as owing the government unpaid funds. Even if the debtor is the federal government, though, it doesn’t automatically disqualify you from seeking a mortgage. It just makes it more complicated and requires some extra financial diligence on your part.

How Complicated Is Obtaining A Mortgage If I Owe The IRS? 

The IRS has several options in their arsenal to collect unpaid taxes, including placing liens on real estate and bank accounts assets should you fail to respond to their official notice within 10 days. These show up in your credit report, often even after bankruptcy.

Federal debt is particularly problematic if you’re seeking a government-backed mortgage, such as a VA or FHA loan. While it also sets warning bells a ringing for private lenders, it doesn’t make it impossible to get a loan so long as your taking the appropriate steps to rid yourself of the lien.

The bottom line is that it’s complicated to obtain a loan with or after a federal lien, but not impossible.

Extra Hurdles Are Involved In Getting A Mortgage For Borrowers With A Federal Lien

Of course, it’s ideal to pay off the lien before applying for a mortgage. That’s not always possible, however. Now, the question for the lender becomes of effort. What are you, the borrower, doing to honor the debt? What level of effort is expected will depend on the type of loan being sought. Another big consideration is how that effort impacts your debt to income ratio.

Veterans or military personnel trying to get a VA mortgage approval, for example, would face proving they have an acceptable IRS repayment plan, have timely honored the repayment plan for at least a year, a satisfactory debt to income ratio, and honestly disclosed the existence of the lien on the loan application.

Automated underwriting can be problematic for any type of mortgage loan involving a borrower with a lien. Lenders, if they’re willing, can use manual underwriting to get around the issue. This involves a more in-depth assessment of your financials and more stringent requirements than traditional underwriting, including requiring a much lower debt to income ratio.

What Can I Do To Improve My Chances Of Getting A Mortgage As A Borrower With A Federal Lien? 

•Pay off the lien as soon as possible.
•Show good faith that you’re making consistent, timely, and full payments to rectify the federal IRS debt.
•Keep your debt to income ratio as low as possible, meaning avoid depleting your purchasing power by creating more debts and utilizing credit limits.
•Ensure that all other debts are paid timely and in full & routinely monitor your credit reports.

While not impossible, obtaining a mortgage as a borrower with a lien on their financial records means that you’ll have to take an active role in jumping across a significant amount of extra hurdles to satisfy a mortgage lender.

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