There’s nothing scarier than getting a certified letter in the mail from the IRS. It turns out that this is a common occurrence since Americans owe more than $131 billion in penalties and back taxes.
What are back taxes? The tax world is complicated. If you want to know what back taxes are and what to do if you find yourself owing taxes, keep reading.
This guide has everything you need to know about back taxes and how to deal with them.
What Are Back Taxes?
Back taxes are simply unpaid taxes. You can owe the IRS, your municipality, or the state.
There are a few common reasons for back taxes. The most common is that you filed taxes and didn’t pay taxes when you filed.
Filing an extension when you owe taxes is another reason for back taxes. That’s right, even if you file an extension, all taxes owed to the IRS need to be paid by April 15.
States and municipalities have different procedures and laws around back taxes.
I Owe Back Taxes What Are My Options?
Back taxes are scary, especially if you don’t know what the IRS or other tax agencies can do to you. The first thing is that you’re assessed interest and penalties on back taxes.
The IRS has a collections process where they send letters to people who owe back taxes. Each letter is automatically generated, and they usually have a code that shows where you are in the collections process.
The letters have the amount owed and the interest and penalties. You also have a date to pay the taxes.
Failure to pay or contact the IRS escalates the matter one step further. You’ll continue to get letters for several months.
That’s when you start to get certified letters. These are much more serious because the IRS can and will use its resources to get the money owed.
The agency can garnish your wages, levy your bank accounts, or place a lien on your property. These are serious steps, so it’s important to take action right away.
Tips for Back Taxes Help
It’s time to take a deep breath and get your thoughts together. You might have a couple of initial responses out of fear, but you can recognize those responses and brush fear aside.
You might be tempted to ignore the issue and hope that the IRS leaves you alone. That they’ll forget about your little tax debt because they deal with 300 million other people.
That’s not going to happen. The IRS will go through its process and you have to deal with the situation.
The other response is to get angry and contact the IRS and yell at an agent. That’s unproductive and could get you into more hot water.
The IRS isn’t after you. They’re just doing their jobs. They are willing to work with you, so you should know what the possibilities are.
Installment Plan
Did you know that the IRS and other tax agencies allow you to pay in installments? You can go on a short-term or long-term payment plan.
You need to contact the IRS to request an installment plan and they have to approve it. Be aware that there are fees for this agreement.
You also have to make your payments on time. A late payment is considered a default and the IRS will resume collections.
Offer In Compromise
Another option is to apply for an offer in compromise. This is an agreement where you pay less than what you owe on your taxes.
This isn’t for everyone, however. This is an option if you have a financial hardship and you can’t pay your taxes.
You don’t want to go through this on your own because these offers have a low acceptance rate. It’s critical to find a good tax relief professional that has experience in this area.
Enter Not Collectible Status
Did you recently experience a drop in income and can’t pay your taxes? What you can do is contact the IRS and have them put you in “Not Collectible” status.
This is a temporary hold on any collections activities against you. This option is good if you know the drop in income is temporary and you’ll be able to pay your taxes within 6-12 months.
Pay Partial Payments
It’s always better to pay something towards your taxes than nothing. Partial payment means that you pay what you can now, and the rest in installments.
For example, you can pay 25%-50% of what you owe now and enter into an installment agreement for the balance.
Finance Tax Payments
There are a couple of alternatives if the steps above don’t work out for you. What option works for you depends on your credit score and how much you owe in back taxes.
For smaller amounts of money, you can pay your taxes with a credit card. You’ll pay more in interest, but your debt to the IRS is cleared.
Another option is to get a personal loan. You need to have good credit to get approved, or you’ll end up paying a lot of money in interest.
Take Care of Back Taxes
What are back taxes? These are unpaid taxes to a local, state, or federal agency. There are consequences of owing taxes, such as liens, garnishments, and levies.
You don’t want to be in this position, so it’s important to get back taxes help right away. The sooner you get help, the sooner you’ll have peace of mind.
Check out the Finance section of this site for tips to improve your financial health today.
