Have you realized that you may owe back taxes? It can be a stressful situation. You never want to owe money, but owing it to the IRS can be particularly scary.
Many people choose to ignore tax issues. They don’t think about it and hope it never becomes an active problem. Ignoring your back taxes will only make the situation worse.
What can you do if you owe back taxes? There are various remedies that may be available. If you are fortunate, you might be able to avoid significant penalties. With that said, tax issues can be complicated, and you might want to look into professional tax resolution services before trying to handle the issue on your own.
Take Care of Past Due Returns
The first step in resolving the issue will be to file your past-due returns. Past-due returns are one of the most common causes of a person owing back taxes. Some people just forget to file a return one year; however, some don’t file their returns for many years.
Filing these returns will help in a few ways. The first is that it can help you avoid any further penalties or fees. Since the fees grow with time, this could save you a lot of money. The second way it will help is that it will make it possible for you to assess the situation. Once you have all your returns in, it will be easier to see what you owe and the types of fees and fines that might apply.
Try to Get an Extension
An extension might be an answer for some people. If you see that you won’t have enough money to pay your taxes for the previous year, an extension could save you a lot of money. It could also help you avoid getting on the wrong side of the IRS by not filing or failing to pay.
You can apply for a short-term extension if you owe less than $100,000. The extension can give you an additional 180 days to pay. It is also free to apply for an extension. You won’t even need to make payments during the extension period. All you have to do is make sure the balance is paid by the time the 180 days run out.
Arrange for an Installment Plan
If you have back taxes and believe you won’t be able to pay them within a few months, you might want to work with the IRS to develop an installment plan. Unlike an extension, this is a plan to pay your back taxes off with monthly payments over a longer timeframe. An installment plan could help you avoid issues like wage garnishment.
Long-term installment plans are usually for tax debts not exceeding $50,000. This includes back taxes and any fees or penalties. There are also various fees that can apply to set up an installment plan with the IRS. However, you might be able to get the fees waived if you can prove financial hardship.
Use Debt to Pay Back Taxes
You might not want to take on debt, but it might be a better option than owing back taxes. Back taxes come with all sorts of fines, fees, and penalties, and the IRS might even charge interest. Taking personal debt and using it to pay taxes might be the better option when you weigh all the costs.
If you do take debt to pay back taxes, make sure to consider different types of loans. If you can only get a high-interest loan, it might not serve you as well. A personal loan from the bank will probably be the best option if you can get one.
First-Time Penalty Abatement
The fees and fines are a big part of what can make tax debts so hard to manage. You owe money, and it just keeps growing. The good news is that you might be able to get the penalties waived or reduced.
If this is the first tax penalty on your account, you might be able to apply for first-time penalty abatement. The only issue is that you will need a good reason for why you got the penalty. For example, if your house had a fire, you might be able to get relief. They might even waive or reduce penalties for honest filing mistakes.
Consider Hardship Filings
The reality is that many people with tax issues have significant financial issues beyond taxes. The IRS recognizes this fact, and they offer remedies for people with legitimate financial hardship. They might be hard to get approval for, but these solutions do exist.
One option is an offer in compromise. With this tax solution, the IRS agrees to let the individual settle their taxes for less than what they owe. You could also try to get your account moved to a currently not collectible status. This status doesn’t make the debt go away, but it puts a pause on collection efforts.
Most people with back tax issues should consider working with tax professionals. These issues are complicated, and you need to ensure they are handled correctly. You don’t want to cause more problems and don’t want to pay more than you need to.