What To Do If You’re Self-Employed and Haven’t Filed Your Tax Returns

 

If you’re self-employed and haven’t filed your tax returns for one or more years, you’re not alone—and you’re not out of options. Whether it’s due to financial hardship, disorganization, or simply being overwhelmed, unfiled tax returns can lead to serious consequences. The good news: the sooner you act, the more control you have over the outcome.

In this post, we’ll walk you through the steps to resolve unfiled tax returns as a self-employed individual, avoid penalties, and get back on track with the IRS.

Why It’s Critical to File

Failing to file your tax returns can result in:

• Failure-to-file penalties (up to 25% of the tax due)
• Interest on unpaid taxes
• Loss of deductions and credits
• IRS filing a Substitute for Return (SFR) on your behalf—which usually results in a higher tax bill
• Difficulty obtaining loans or government benefits
• Potential criminal charges in extreme cases
• Forfeiture of refunds if you wait too long (see below)

Statute of Limitations and Refunds

If you’re due a refund, you must file within three years of the original due date to claim it. After that, the IRS will not issue your refund—even if you’re entitled to one. This is a key reason to file as soon as possible.

Step 1: Gather Your Records

Start by collecting all relevant financial documents for each unfiled year:

• 1099-NEC or 1099-K forms from clients or platforms
• Bank statements showing income deposits
• Receipts and invoices for business expenses
• Mileage logs, home office expenses, and other deductions
• Prior year tax returns (if available)

Missing documents? Request a Wage and Income Transcript from the IRS using your online account or Form 4506-T.

Step 2: Determine Which Years You Need to File

The IRS generally requires the last six years of returns to be filed to be considered in good standing. However, if you’re applying for a loan or a tax resolution program, you may need to file more.

If the IRS has already filed a Substitute for Return (SFR) for you, you can still file your own return to replace it and potentially reduce your tax liability. SFRs are based only on income reported to the IRS, with no deductions or credits, so your actual tax bill may be much lower.

Step 3: Prepare and File the Returns

You can prepare your returns using:

Tax software (if you’re comfortable doing it yourself)
A tax professional (recommended for multiple years or complex situations)
Be sure to:

• Report all income, even if you didn’t receive a 1099
• Claim all eligible deductions (home office, supplies, travel, etc.)
• Include Schedule C for self-employment income
• Pay self-employment tax (Social Security and Medicare)—remember, as a self-employed individual, you’re responsible for both the employer and employee portions

Step 4: Address Any Tax Debt

Once your returns are filed, you’ll know how much you owe. If you can’t pay in full:

• Apply for an Installment Agreement: Pay your balance over time in monthly payments. Apply online
• Submit an Offer in Compromise: Settle your debt for less than the full amount if you qualify. Check eligibility
• Request Currently Not Collectible (CNC) Status: If you’re experiencing financial hardship, the IRS may temporarily pause collection efforts.

Penalty Abatement:

If you have a good compliance history or a valid reason for not filing, you may qualify for first-time penalty abatement or reasonable cause relief. This can reduce or eliminate certain penalties.

Step 5: Stay Compliant Going Forward

To avoid future issues:

• File on time every year (even if you can’t pay)
• Make quarterly estimated tax payments
• Keep detailed records of income and expenses
• Use accounting software or hire a bookkeeper

Don’t Forget State Taxes

State tax agencies have their own filing requirements and consequences for unfiled returns. Check with your state’s tax authority to ensure you’re compliant at both the federal and state levels.

What If the IRS Contacts You First?

If you receive a notice from the IRS about unfiled returns:

• Don’t ignore it—respond promptly
• Request more time to file if needed
• Consult a tax professional to help you respond and negotiate

Frequently Asked Questions

Will I go to jail for unfiled returns?
Criminal charges are rare and usually reserved for cases involving fraud or willful evasion. Most people face civil penalties and interest.

Can I file old returns electronically?
Generally, only the current and two prior years can be e-filed. Older returns must be mailed.

What if I can’t find all my records?
Use IRS transcripts and bank statements to reconstruct your income. Reasonable estimates are allowed if records are missing, but document your methods.

Helpful Resources

IRS Get Transcript Tool
IRS Installment Agreement Application
Offer in Compromise Pre-Qualifier
IRS Self-Employed Tax Center

Final Thoughts

Unfiled tax returns can feel overwhelming, especially when you’re self-employed—but they don’t have to define your financial future. By taking proactive steps, you can resolve your tax issues, avoid further penalties, and regain peace of mind.

If you’re feeling overwhelmed, contact us for a confidential consultation. We can help you organize your records, file your returns, and negotiate with the IRS to find the best solution for your situation.