Nov 29, 2016
Everything You Need to Know About Back Taxes (And How to Eliminate Them)
While you may be stressed wondering about what your future holds, rest easy knowing that there are several back taxes relief options available.
What Are Back Taxes?
Before you spend too much time worrying about the penalties that you may face, you should first understand what back taxes are. Back taxes are any taxes owed for previous years that were not paid on time. In some cases, back taxes are owed because the taxpayer failed to report all sources of income or made an error with deductions.
In other cases, the taxpayer may have intentionally failed to pay taxes on time. For example, this is common when a taxpayer is struggling financially, such as with job loss or after the loss of a loved one. It also happens when he or she simply is unable to pay the taxes because the amount owed is too high.
The Importance of Addressing the Issue Promptly
As soon as you become aware that you owe back taxes, it is important to find a resolution and to follow through on that resolution.
The IRS and other taxing entities are relentless about the collection of taxes owed to them, so this is not a problem that will simply go away. In fact, with interest charges, penalties and even the potential for legal issues to develop, it will likely cost you more to avoid the issue than to seek out back taxes relief.
How to Address the Issue
As soon as you receive notice that you owe back taxes, you need to take action. There are a few options available to you. First, you could work with a tax attorney, and he or she may represent your best interest while fighting for your rights against the taxation authorities. Second, you could file your own back taxes, and this may save you from having to pay legal fees to an attorney. However, it leaves the sole responsibility of resolving the issue on your shoulders.
What a Tax Attorney May Do
Many who owe back taxes want to receive the legal representation that a tax attorney can provide. A tax attorney may meet with the IRS or taxation representatives on your behalf. This is a professional who knows and understands tax law and who will fight for your rights. He or she also understands all the back taxes relief options available and can work hard to secure the best possible outcome for you. Some offer online services, but many offer personalized services for local clients.
If You Deal With the Situation On Your Own
While many taxpayers who owe back taxes want to hire a tax attorney for legal representation, others prefer to handle the situation on their own. There is a cost associated with legal fees paid to a tax attorney, and some individuals may not be able to afford to pay expensive legal fees.
Keep in mind that there is a middle ground between these two options, and this is through online services for back taxes relief. This could provide you with the support and guidance you need without the high cost of expensive legal bills.
What Are Your Repayment Options?
Through effective back taxes relief strategies, you may be able to reduce the amount of money you owe to the IRS or another taxation authority. However, most taxpayers will still need to file an amended return and pay at least a portion of the taxes due.
Your first step is to prepare an amended return that is agreeable to the IRS or other taxation authority. Then, consider how you will pay your back taxes. The IRS and other taxation authorities accept a check or a credit card, and this gives you some flexibility with your payment options.
If you cannot pay the amount in full, you often can set up a monthly installment plan to clear the debt away slowly over time. You may also need to get creative with your finances, such as by refinancing your home and tapping into equity, refinancing a car or taking other significant steps. You may also sell furnishings and other belongings or liquidate other assets that you own so that you can eliminate your tax debt.
What Can Happen If You Fail to Pay
The ramifications for failing to pay the IRS or other taxation authority are significant, and this is why you want to take every step possible to repay your debt. Initially, the IRS or other taxing authority may impose late charges and interest charges to the amount owed, and this may continue to happen on a monthly basis until the debt is paid in full. Because of this, time is of the essence.
If you still do not pay the back taxes that are due, a tax lien may be filed against you, and this can make it difficult or impossible to obtain credit or a loan until the debt is paid off. It can also damage your credit even after the debt has been repaid. In extreme cases, the taxation authority may garnish wages, seize assets or even prosecute you with criminal tax evasion charges that ultimately could mean time behind bars.
How to Avoid Owing Back Taxes in the Future
The good news is that there is effective back taxes relief available, but the best option is to avoid finding yourself in this type of situation in the first place. If your back taxes situation was caused by a reporting error on your part, you may consider using an accountant’s services to file your taxes in the future. If you back taxes situation was caused by the financial inability to pay your taxes, you may need to take drastic steps to improve your financial situation. For example, you may need to get a second job to pay off outstanding debts and to build up a savings account balance to fall back on in times of need.
Being in debt to the IRS or another taxation authority is not a situation that you want to be in. If you are currently dealing with a back taxes issue, consider using the supportive services available to you through a tax attorney or online services to find a fast and effective resolution to your problem. Once you have paid your debt off, you can then focus your efforts on improving your finances to avoid falling into this same debt situation again.