Filing Back Taxes IRS Past IRS Due Tax Obligation.
There are a lot of potential causes for you to lose sight of the financial aspect of your small business. Unexpected events can indeed cause even the most seasoned entrepreneurs to fall behind.
At the end of the year, paying Uncle Sam his share of your earnings is the last thing on your mind. The temptation to put off dealing with taxes until later is understandable when there are a thousand other things to worry about.
Just because you avoid thinking about your tax obligations doesn’t mean they’ll go away. Put off paying your income taxes, even for a short period. Therefore, the amount you owe will grow exponentially due to interest and penalties.
Back taxes: what are they?
“Back taxes” is another name for your outstanding tax bill. “back taxes” refers to any unpaid income taxes from previous years.
The first thing you should do if you are late on your taxes is not to worry. Generally, the reports of individuals being jailed by the IRS due to tax debt are substantially inflated. In reality, people who knowingly avoid paying their fair share of filing back taxes IRS are typically the ones who face that punishment, not entrepreneurs like you.
Several customizable options from the IRS are available to alleviate the financial strain of unpaid taxes.
What occurs if your taxes are not paid?
Paying taxes on time is something the IRS takes very seriously. However, the following steps will be taken by the IRS if you fail to meet their deadline and allow your tax obligation to accumulate:
A reminder letter will be sent to you by the IRS
The IRS will send you a notice outlining the penalties and interest levied for nonpayment if you fail to file your return by the designated time.
Penalties start to apply
The IRS will put the following charges on your tax bill if you haven’t notified them honestly of your financial situation:
- The “failure to file” penalty equals 5% of your outstanding tax bill. Moreover, not counting the month you file an extension, it covers every month your return is late, up to a maximum of 25% of all of your unpaid taxes.
- Your outstanding tax bill plus 0.5% is the “failure to pay” fine. It is applicable for every month that your unpaid taxes continue to accumulate. Additionally, this penalty cannot go over 25% of the total amount of your overdue taxes.
Accrual of interest begins
Applying penalties isn’t the end game for the IRS. The total amount you owe, including penalties, will also be subject to accumulated interest. Further, you will be charged interest on your income tax return the moment it is overdue.
The IRS could levy taxes on your assets
When you don’t pay your tax bill in full, the IRS can take tax claims against your property. Generally, levies are usually the last option but can carry your income, bank accounts, real estate, cars, and other personal belongings. If you are due a refund on your state taxes, the IRS can take that money to pay off your federal tax bill.
Any money you get from the federal government—retirement annuities, social security benefits, or military retirement funds—may be subject to taxes because the IRS is a federal entity.
The IRS has to file a tax lien on your property before they can seize it. A lien is a way for the IRS to claim enough of your property as collateral to force you to repay the debt. Specifically, these assets include bank accounts, business property, and even personal property if you are self-employed and file as a single proprietor or partnership.
If you pay a tax lien for a short time, the IRS will send you written notice of the levy. Therefore, this gives you a chance to contest or challenge the decision. If a levy would put you in severe financial trouble or if you can work out a payment plan with the IRS, the money can be released.
For you, the IRS will file a substitute return
The IRS’s Substitute for Return Program lets them file your return for you two to three years after the original due date. The IRS doesn’t want you to get the most exemptions, so when you file your substitute return, they will only sometimes have your best interests in mind. Markedly, they won’t search for any tax credits, refunds, exemptions, or write-offs that apply, which can increase your tax debt.
Helpful hints for handling your filing back-due taxes
Resolving your tax status and restoring good standing with the IRS is possible in multiple ways. You can get your back taxes paid in the following few different ways:
Borrow money for yourself or your business
Getting a personal or small business loan may pay off the tax obligation. Still, the amount and interest rate will determine this. If approved, your interest rate and monthly payment amount will remain constant during the loan’s duration. Whereas, compared to the IRS’s additional application costs, penalties, and interest, the total cost of a loan can be far lower.
Use a credit card to settle the IRS past IRS due tax obligation
With a 0% APR card, which is offered by many credit companies to new customers, this works well. Therefore, with this plan, you can pay off your debt fully without accruing any interest. Is there a catch? High monthly interest charges will apply if you do not pay off the balance before the introductory period ends.
Request a temporary extension
Buying time with the IRS is likely the most straightforward and uncomplicated option.
You can buy an extra 120 days to pay your taxes by completing a short . A penalty of 0.5% per month will still be applied to the unpaid debt, but there is no price for the extra time. Surely, this option lets you skip the payment plan application fee, but it also comes with a 3% interest charge.
Sign up for an installment plan
You can pay your taxes over time with two different installment plans from the IRS.
Taxes, penalties, and interest cannot exceed $100,000 during the 120-day grace period. An additional 180 days can be added to this plan if necessary. In essence, you can deduct the funds directly from your bank or savings account. Additional payment options include debit/credit cards, money orders, or checks.
The total amount of taxes, penalties, and interest that can be paid over the 120 days is $50,000. Undoubtedly, the online application fee is $31 when paying via automatic withdrawal. If you choose to apply in person, over the phone, or through the mail, the cost is $107. Applying online will cost $149 with another payment method while applying in person will cost $225.
Remember that if your past taxes exceed $25,000, you must set up recurring monthly bank withdrawals to pay the balance.
There is still a legal obligation to file, even with the installment plan. You must ensure that all future filings are up-to-date to retain the agreement with the IRS. In particular, it is also essential to pay all taxes, including projected taxes for self-employment, on time consistently.
Use an Offer in Compromise (OIC) to arrive at a settlement
If you owe money to the IRS, you can negotiate a reduced payment by submitting an Offer in Compromise (OIC). However, this choice is only available to some.
If the IRS is still determining if they can collect the entire amount due from you soon, they may grant you an OIC. Another scenario is when you cannot fully pay your back taxes due to financial difficulty.
It is not possible to complete an OIC by phoning the IRS. There is a $205 application cost, and the procedure is formal, including completing IRS Form 656.
Plus, you must fill out Form 433, Collection Information Statement, which describes your present financial status and is required by the IRS. Along with the total amount of back taxes you owe, you must provide copious amounts of paperwork proving that you cannot pay, such as bank records, car registrations, and other similar items.
When filing a Collection Information Statement with the IRS, including a letter outlining your serious situation is sometimes helpful. Generally, this will help to grab their attention. Include a doctor’s statement if your condition is relevant to your case.
If you do not accept the offer, the IRS is required to provide you with a written explanation. Typically, this occurs when the offer is deemed inadequate. Certainly, the IRS will then provide a reasonable amount for the OIC.
Get your status changed to "Currently Not Collectible"
For example, you’re having trouble paying your bills and taxes. In that case, you can apply for your account’s “Currently Not Collectible” status. The IRS may ask you to fill out a Collection Information Statement and provide proof of your financial situation, much like under the OIC agreement.
This position is transient, unlike the OIC. In that case, the IRS may conduct an annual review to determine if your financial situation has improved enough to collect the tax bill.
Seek the advice of an experienced tax resolution expert for your IRS Past IRS due tax obligation
For example, you’re overwhelmed by the thought of dealing with the IRS alone. In that case, a tax resolution professional like Credow can be hired to help you out.
If you’re seeking this kind of help, be careful of tax resolution companies that use unskilled workers who make empty promises. Furthermore, the investigation alone could cost you several thousand dollars.
Talking to a tax expert who can legally represent clients in IRS proceedings is your best bet instead. But, before asking for payment, they can address your concerns regarding your past taxes and walk you through the steps.
To summarize
You may be unable to keep tabs on your business or file your taxes on time if you are dealing with unforeseen personal circumstances. Even though paying back your taxes isn’t easy, you can avoid fines and interest if you do it quickly.
You can pay off your overdue taxes in affordable installments using one of several options. Specifically, by working with the IRS to establish an installment payment plan or even lessen your debt, you can make payments more manageable without drastically affecting your quality of life.
You need to account for not just federal taxes but also state and local taxes. In Conclusion, visit your state’s taxing authority’s website for more information regarding these taxes.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.