One of the biggest mistakes a taxpayer can make is not filing tax returns. Filing tax returns gives you the opportunity to take advantage of deductions and tax credits which could actually get you a tax refund. However, so many taxpayers put off filing until they feel it is already too late. This page will discuss what happens when you need to file IRS back taxes and what you should do.
Problems Caused by IRS Back Taxes
If you were required to file your tax returns and didn't, the IRS will file a Substitute for Return for you. This is never to a taxpayer's advantage. Your tax return will be filed either as Single or Married Filing Separately, depending on the last filing status they have on file for you. No deductions or tax credits will be used. All of your IRS back taxes will be taxed at the highest possible tax bracket, which is about 20% more than what the average taxpayer pays. If your payroll department did not withhold 35% of your paychecks, you can expect a pretty hefty tax debt.
The amount of your tax debt for IRS back taxes won't stop there. You can expect expensive penalties to increase your debt. The IRS adds on a Failure to File Penalty. If you didn't file a return more than six months after its due date, this penalty will be 25% of your tax debt. The IRS also adds on half a percent of your tax debt every day that you do not fully pay your tax bill. This is called a Failure to Pay Penalty. Interest is also added on for each day that your debt isn't paid in full. The interest rate can change every 3 months. Recently, it has been hovering around 4%.
The IRS takes IRS back taxes very seriously. It is a waste of time, resources, and money for the IRS to figure out how much you owe. The IRS will attempt collection activities. Those with IRS back taxes can expect liens, levies, and seizures. If you have more than just a few years of IRS back taxes, you may even be considered a tax protestor. Not only could you wind up with a sizeable tax debt, but you could also wind up in jail. The bigger your IRS back taxes debt is, the more likely it is that the IRS will consider taking you to court.
What to Do About Your IRS Back Taxes
Needless to say, you should file any missing tax returns immediately. It is also a good idea to replace Substitutes for Return with your own personally prepared tax return. This could lower your IRS back taxes dramatically. Consider requesting a Penalty Abatement, if there were circumstances that prevented you from filing your taxes. Even after all that, you probably will still have an IRS back taxes debt. The following is a list of payment options.
If you simply cannot afford any of those options, you can prove a hardship status and enter into a Currently Not Collectible status. But, remember that making the wrong choice can greatly hurt your situation. It is usually a good idea to consult a tax debt professional, if you owe more than $10,000 in IRS back taxes. The IRS is much more likely to try liens, levies, and seizures with higher IRS back taxes.
Do you owe more than $10,000 in IRS back taxes? Consult a professional. Call (800) 590-4524 now or fill out the form below for a free tax debt consultation to take control of your IRS back taxes! We'll only connect you with a tax debt relief company holding at least a B rating with the Better Business Bureau.
