Facing the reality of back taxes can be a daunting experience, whether it’s for personal unpaid taxes or those resulting from payroll, but it’s never too late to file your back tax returns. For many people, their first notice of back taxes is when a levy hits their paycheck, bank account, or both. Others receive correspondence from a State or IRS auditor, claiming that they owe thousands of dollars – together with substantial penalties and interest – for past tax returns. Some fail when filing back taxes perhaps believing that they are not required to file, only to find that the IRS has filed their returns for them. Faced with mounds of IRS correspondence, some people feel too overwhelmed to act, which further compounds their problems.
It is important that those who are experiencing back taxes act as quickly and efficiently as possible. As stated further on, the consequences for not handling a back tax problem can be monumental. If there’s an issue, consulting a tax professional is the tax payer’s best option in ensuring the taxes are handled correctly, and that they don’t accrue any further penalties.
What are the Consequences of Not Filing Back Taxes?
The consequences for failing to pay taxes and failing to file taxes are vastly different, with failure to file incurring much higher rates of penalty. If taxes remain unpaid, a truant taxpayer may be charged high penalty interest rates, see their assets seized, and in rare cases, face jail time. At the very least, if you’re looking for more time to pay your taxes, you can file the form 4868 for a six month extension. This type of correspondence insures that the IRS knows the taxpayer is experiencing difficulties paying their taxes or filing them by a given deadline.
If you simply don’t file taxes, there’s a possibility that after extra fees have accrued, or the IRS will simply file your taxes for you in the worst way possible; they will file the taxpayer as a single individual with only one exemption, despite what criterion they fall under. This will in turn create a larger amount owed.
If you don’t pay taxes, the IRS will take action against you. It’s usually not immediate, but after enough back taxes go unaccounted for, the government will take action and put a lien on your paycheck or property. Perhaps even a state lien, depending on the situation. As a whole, the taxpayer will take a large monetary hit and their credit will plummet. They’ll have to spend extra money than they otherwise wouldn’t have had to pay. In the worst case scenario, especially if they’re wealthy and seemingly capable of paying their taxes, the government can decide that they’re purposefully not paying taxes, declare fraud, and throw them in jail.
It’s important to file taxes in their respective deadline and payout the back taxes in order to avoid penalties, levying of assets, and jail time.
What if I Missed the Tax Deadline?
It’s essential that you file as soon as possible to avoid incurring higher penalties and being forced to pay even more than you owe due to accrued interest.
Will the Government Levy my Assets?
It is a possibility that the IRS will levy the assets of a taxpayer who has repeatedly failed to make payments. At the bare minimum, when filing again, all rewards or tax breaks will go straight into the pot of money you owe to the IRS. If a taxpayer still fails to pay, then the government can take these following steps:
Wage Garnishment: If the government garnishes your wages, your employer will be legally required to withhold a certain percentage of your pay to cover unpaid taxes. This is the easiest of the punishments the government can enforce when there’s failure to pay taxes.
Tax Lien: If a tax lien is enforced, the government has claimed your property as an assurance of rights to your property over other creditors waiting for debt payment. Meaning if you lose your property to the government, it will go towards your taxes, and you’ll still owe money to creditors.
Bank Levy: Tax officials will demand that your bank puts a hold on the funds in your account, and seize said funds to cover your unpaid tax liability. This allows for 21 days before the government can legally withdraw the money from your account to cover the taxes owed.
Property Seizure: All of your property assets are up for grabs if you have repeatedly avoided repaying your taxes. Authorities may seize items such as your home, car, boat or any other asset that might be sold to cover your debt. Again, when this occurs, the funds derived from the sale of your property(s) help to clear your tax debts, but do not contribute to the individual loaners owed for any of the given properties seized.
It is essential that you speak with a tax professional as quickly as possible to formulate a payment plan that will work for your individual needs. The goal being to avoid any of the aforementioned penalties. A tax professional can help work out a plan with the government and taxpayer that work for both parties and keeps the taxpayer out of legal trouble, more debt, and in the worst cases jail.
What if I Can’t Pay what I Owe in Full?
The IRS offers various payment plans that can help taxpayers who may not be reasonably able to pay the full amount owed. Despite what you can or can’t pay, a response indicating your situation should be sent to the IRS immediately. Pay off as much tax debt as you can and then you can begin to explore IRS’ payment options; an installment agreement, an offer in compromise, or a temporary delay of collection.
Installment Agreement: This is a monthly payment plan that allows you to pay a rate to the government over an extended period of time, that time usually being anywhere from 4-6 years. If you owe $50,000 or less, you can usually apply for an online payment agreement. If not, then you’ll have to make the request by filing form 9465 and then proceed with a Collection Information Statement as well; Form 433-A, Form 433-B, or Form 433-F.
Offer in Compromise: This is a settlement offer that you and your tax professional make to the IRS which amounts to less than the debt owed. How it works is you pay this amount and the IRS will then forgive the remaining balance. This type of payment alternative can be tricky because the taxpayer has to meet a specific criterion that proves they’re eligible. For instance, if the taxpayer is eligible for an installment agreement then they will not further be eligible for an offer in compromise. This sort of payment plan is overtly for those experiencing ‘extraordinary hardship.’ However, if the taxpayer, usually assisted by a tax professional, can declare and prove that they’re eligible, then the offer in compromise can be incredibly beneficial.
Temporary Delay of Action: This option is not a payment plan, but more of a diversion of the immediate amount due. In this case, the IRS labels your account ‘not collectible’ and will then wait for your financial situation to improve. By no means does this reduce your tax debt owed and in some cases will accrue interest while the delay is in process.
In any case, there are always options when dealing with tax debt. It’s important that if you’re going to tackle the problem on your own, you do an ample amount of research on your conflict and understand exactly what criterion you fall under. However, for these types of issues it’s strongly recommended that you consult a tax professional and ensure that everything is done correctly.
Should I File My Own Back Tax Return?
Fortunately, there are several ways of resolving these problems and getting back taxes help. If the balances are the result of returns filed by the IRS, then filing back taxes can solve most of the problem. A return prepared by a professional tax preparer will ensure that the taxpayer benefits from all allowable deductions, credits, and other tax benefits.
If you do insist on doing them yourself, although this is not advised, the proper research must be done beforehand. As for a few tips to remember, read below.
–Your late tax returns have to be filed on paper. It’s completely fine to use whatever program to prepare the returns themselves, but they ultimately have to be mailed into your local IRS service center. Remember that despite the situation, you cannot electronically file your back tax returns.
–Differentiate the envelopes you use for each tax return. The most advised route here is to send them via certified mail. This ensures that they’re going to the correct destination and more importantly gives confirmation if they’re received or not. Keeping the different returns in different envelopes basically helps the IRS in their initial round of processing, and reduces the room for error if there are multiple.
–Make sure to hand deliver if your deadline is up. If you’re in a bad time crunch, then hand deliver the returns to your local IRS office. It’s advised that you make photocopies of the first page of each respective return. Once at the office, ask the IRS to stamp each photocopy in the order it’s received. The photocopies then become legal receipts which can ensure date of filing, time of filing, and substance of filing.
What if I Have Been Audited?
Although audits are usually rare, there is still a chance that the IRS will investigate a claim. Or, sometimes the computer system will catch a red flag and then do its due diligence on its own. If a taxpayer is being audited for back taxes, the first thing to assess is exactly what is being audited and why. Remember, the IRS has access to all financial information (wages, mortgage interest, pre-exposed debt).
Once these questions are answered, the taxpayer will be able to understand exactly what sort of documentation they need to provide to prove that their taxes are accurate. In the case that the taxpayer does not have any of these documents available, they will then have to proceed to third parties to obtain proof of their claim.
As with all dealings with the IRS, it is advised to respond in the timeliest and most polite manner possible when settling these issues. This case in particular, as there will be an auditor designated for your immediate case. A true audit is generally something that is very serious and should not be taken lightly. We recommend a tax professional as they will help you prepare a defense that includes verification of expenses and deductions claimed on a tax return. Penalties can be removed through penalty abatement, provided that a reasonable cause can be shown.
Due to the amount of preparation that needs to be done when handling an audit, without professional help the taxpayer will often overlook crucial information they need to provide for proof of accuracy.
As you can see, back taxes are not something to be taken lightly and can often prove to be quite complicated when handling. In order to insure that the taxpayer does not run into further trouble and does not continue to accrue interest on their outstanding tax balance, the right steps need to be handled carefully, quickly, and professionally. With the many options available to get back taxes help, choosing the correct path to tax resolution can be difficult. Community Tax is a full-service tax professional company that employs experienced tax practitioners who are able to analyze your particular circumstances, identify the source of the tax balances, and develop a plan to most efficiently resolve your back tax problems including filing back taxes. Just as there are many ways to incur back taxes, there are also many ways to fix them – and applying the correct fixes in the correct order can save you thousands of dollars!
If you need back tax help, call Community Tax today at 1-888-676-4319.