How to Handle Back Taxes
Let’s face it, no one really likes filing an annual tax return. You may have taken an extension to file your taxes later, but you still need to pay your taxes by the deadline or pay penalties and late fees. So, what happens if you don’t file a tax return? For starters, the IRS will consider you to be delinquent and you will owe “back taxes” that will very likely have penalties and late fees added on.
So, what should you do if you owe back taxes? It doesn’t matter how late your tax return is or even what your excuse is, contact a tax professional for assistance completing your tax return to avoid even more tax penalties. Try these tips to get a handle your unfiled returns.
* Find a licensed tax professional. Never try to fix the back tax issues without the advice and assistance of a tax professional. If the IRS has contacted you about back taxes your tax professional can help you contact the IRS and help resolve the issues. The longer you delay the worse things get.
* Your Rights and Options. The IRS can be intimidating but a licensed tax professional can advise you of your rights and options for payments.
* Can’t pay? File anyway. File your tax return as soon as possible. The penalty for failing to file can be as much as 10 times more than the failure to pay penalty. The late filing penalty is 5% of the unpaid tax, each month that the taxes return is late. There is also a penalty of .05% of any unpaid taxes, each month you make late payments.
* Ask for an extension of time. Individuals may get an “extension of time” up to 6 months to file returns. This may be a longer extension if you are located overseas. Just remember that this extension is only for filing, you must still pay the taxes owed at the deadline.
** If you pay at least 90% of the taxes owed by the deadline you may not be liable for the “failure to pay” penalty. However, if you are eligible, you must pay the balance of taxes owed by the extension deadline. If you don’t pay the balance you will owe retroactive interest to the original due date.
* Set-up an installment plan. If you filed the required tax returns and owe less than $50,000 in the combined tax interest and penalties you may be able to set up an installment plan with the IRS. For a balance up to $100,000, you may be eligible for a short term installment plan. If you fail to make scheduled payments the IRS will revoke your installment plan and resume the collection process.
* Credit card payment. Depending on your credit, it may be cheaper in the long run to pay your tax bill by credit card than to risk paying a higher amount in late fees and penalties to the IRS.
* Make an offer. If you have proof that you are unable to pay your taxes the IRS may take your financial assets and situation into consideration. To be considered for a lump sum or periodic payments, unless you have an extension in the current year, you must have filed all required returns.
* Communication. Consider sending all your communication to the IRS using certified or registered mail and be sure to save the receipts. The receipts will serve as proof of your postmarked and delivery date. Ignoring the IRS may lead to serious consequences.
You can avoid tax penalties and fees by filing a return on time and paying any taxes you own in a timely manner. If you have back taxes that need to be filed, contact a licensed tax professional as soon as possible to prevent even more penalties. If you need assistance contact our office.