Unfiled taxes can be a simple mistake but it is one that can lead to a world of problems if the situation is not address properly and immediately. Taxes are considered delinquent when they have not been filed by the return due date or if an extension was granted, the forms were not filed by the deadline. When people first realize they have not filed their income tax, the first thought they have is that they will wind up in jail. While punishment for back taxes is not as severe as prison, there are consequences that can seriously alter your financial stability.
What To Do First
The first thing you need to do is file the paperwork. You need to gather the information from the missed year(s) and get to work immediately. You’ll need to have your W-2’s or other income statements, a list of expenses, receipts, and all other income related information. If you do not have these records, you can contact the IRS office and request the information for your income that has already been reported to the government. It is important to fill out the forms completely and not just in a mad rush to get the paperwork filed. It can be an overwhelming task but there are tax professionals who do specialize in helping you get your late returns prepared. While a tax service can ultimately smooth the process for you, there is still effort required on your part to provide the most accurate information.
Once you have sorted through the paperwork, you’ll need to complete the appropriate tax form which can be found on the IRS website. After calculating the taxes you find you owe the government money, you’ll need to send a check for the full amount due along with your tax documents. If you have more than one year’s worth of overdue tax filings, send each year in a separate envelope via Certified/Return Receipt mail for your own records.
How to Pay for Back Taxes
If you are not able to make payments in full, there are other options to consider. One option is an Offer of Compromise. This is an agreement between the IRS and the taxpayer to settle the amount owed in back taxes through a series of monthly installment payments. If you are eligible for the agreement, you will be able to make reasonable monthly payments within a reasonable period of time. After the agreement is made and payments are made as agreed, the taxpayer will be considered in good standing with the IRS.
What If You Don’t Pay?
A delinquent tax filing is a serious matter and there are consequences for non-payment and non-filing. The IRS can use its authority to take the money from you without much recourse. Some actions include:
- Tax Penalties – interest and penalties added over time increase your total debt to the government. You’ll end up paying much more money the longer you wait to file and see payment assistance.
- Substitute Tax Return – the IRS will calculate a return for you based on the income information submitted to their office. You will not be able to claim expenses, exemptions, or deductions and may end up with a higher tax liability than if you had filed your actual return.
- No Refunds – any refunds anticipated from subsequent income tax return will be forfeited and used to satisfy the previous years’ tax debts.
- Levy – a levy is an enforced collection that tax authorities use because there is no communication between the taxpayer and the IRS. The government can put a levy on your bank accounts, your wages, and even file against any property you own.
Communication is Key
Communication with the IRS office is essential to settling your back tax issues. Again, there are professional tax services that will negotiate the process for you for a cost. You can negotiate the filing and payment of back taxes on your own accord just as effectively. The IRS is willing to help delinquent tax filers and offers assistance in settling the payments that are not reasonably paid in a lump sum.
Inability to pay off tax debts are one of the main reasons why people fail to file. Self-employed individuals also make the mistake of not reporting their income properly. If you have missed the deadline to file your tax returns, it is important to deal with the matter immediately and head-on. Tax debts will not go away and ignoring the IRS will only enhance a negative situation which can have a serious impact on your financial future.
Get Prepared
Learning a lesson the first time around is an act of self-improvement. Whatever reason you did not file taxes on time in previous years should never be a reason to do it again. After putting the past years’ tax nightmare to rest, start planning a better organizational method for preparing for next tax season. Keep folders and records in one place and remember to keep updating information. Not only will it be easier to file on time, you’ll likely have more accurate records that will allow the government to refund you money instead of being indebted to them once again.
Guest Post by Tisha a Tolar from Backtaxeshelp.com, a site designed to help you with IRS back taxes. Owing back taxes to the IRS is stressful, and negligence will only worsen the situation. Learn how to pay back taxes. Tisha is not endorsed or affiliated with LPL Financial.
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