Back taxes are the taxes that individuals do not entirely pay on the due date. You should pay your taxes on time every year. In case you fail to pay your tax, then you are liable to fines, penalties, and collection activities like bank tolls or salary garnishments. Not paying taxes can make things complicated. So, here are a few strategies to help you get rid of back taxes.
Do not avoid the IRS
The first approach towards relief on back taxes is keeping your communication open with the IRS about tax status. Do not ignore the letters and calls from the IRS. Ignoring their efforts of communication will make the matter worse. Instead, answer the IRS calls and explain to them your situation. They might come up with a resolution to help you in avoiding the collection activity and settling your account. Based on your conditions, you can request them for deferring your taxes citing reasons of hardship for paying your back taxes. IRS can grant you hardship deferment in the following situations:
- Loss of job
- Suffering from a severe disability or medical ailment.
- Loss of a loved one
To confirm whether you are eligible for hardship deferment, consult your tax expert before proceeding to ask the IRS.
Request IRS to waive off your penalties
The interest and penalties keep increasing until you pay the back taxes. The greater the fees, the more difficult it gets to pay off your tax debt. You can request the IRS for a penalty waiver to eliminate the additional costs, considering you to pay just the tax balance.
Do not delay your current tax filing
You must continue to timely file and submit the current tax return every year, even when you are facing the back tax problem. When IRS is reviewing your account, make sure that you file the current tax on or before the April filing deadline. In case you miss the current year tax filing dates, then you can ask the IRS to arrange a mode of payment to avoid further piling up on what you already owe to the government. You can ask them for an installment payment method or any other method to demonstrate that you are reliable and willing to make the payment.
Settle your back taxes using a credit card
Use a low-interest credit card to settle your back taxes. It will help you to settle your tax debt and buy you some time before reimbursing your credit card bill after a few months. Paying through a credit card is a more stable choice than using a debt settlement since it disburses your debt in a single return. This way, you can dodge off the fees and penalties that would have come if you had delayed the payment to the IRS.
Get organized while dealing with your back taxes and start with the previous year when you filed taxes. Start making copies of your salary earning receipts and paperwork from that year onwards for which you failed to file a tax. You can get a copy of your income-earning record from your local IRS in case you do not have the original ones. Also, double-check with a tax professional about your back tax numbers and ensure that you report accurate annual income figures to avoid any penalties.
Calculate the precise amount that you owe to IRS
While filing your back tax returns, go through each one and make sure that you prepare it as per the IRS instructions. Your goal is to find out how much you owe to IRS and how much, if any, does IRS need to refund you at the end of every filing form. If you are not particular about your filing abilities, then ask a tax professional to go through your returns to make sure everything is correct. In case of any errors in the math, the tax professional can correct them before you submit your returns.
Submit past tax returns by paying a nominal amount for each debt
You must provide $5 for every tax debt you have to pay them while sending your tax return. It will get you back into compliance with the IRS. They will notice that you are sincere about repaying your back tax returns.
Ask for an alternate payment option for paying back taxes
If you are not able to repay the IRS in full, then ask them for a different payment option. Payment options like:
A monthly installment agreement
Check to withhold
An Offer in Compromise or OIC
Monthly credit card withdrawals
Currently Not Collectible Status or CNC
These payment options allow you to pay off your back taxes in the best affordable way.
Ask a Tax Specialist
Lastly, if you have no idea how to settle back taxes, then appoint a tax professional. Your tax professional would be the right person to suggest you the best way to solve your outstanding payment. In some cases, they will settle your back tax amount for less than what you owe them. They will also suggest ways to deal with the IRS for the next time when you owe back taxes.
The IRS aims to collect the debts that you owe in the form of back taxes from the past few years. If you do not take this seriously, you will run the risk of income loss or seizure of assets. To avoid these extreme penalties, you can resolve your back taxes by filing your back taxes, asking for waiving off your penalties or involve an expert tax consultant who can help you file your taxes and satisfy your account with the IRS.