Almost 10 million Americans owe the IRS over 82 billion dollars in back taxes according to a report released in 2014.
If you’re one of the millions of people that owe back taxes, you may not know what to do next. You may be afraid to do anything at all. Missteps in dealing with back taxes often only make the problem worse.
Here, we’ve outlined some common mistakes and explained why these are ineffective strategies when you owe back taxes.
1. Deciding Not to File This Year’s Taxes
Just because you owe money from previous tax years doesn’t mean that you should avoid filing taxes. Not filing won’t stop “running up your tab” so to speak. If you fail to file taxes during any tax year, you’ll face a “failure to file” penalty.
Failure to file penalties are much heavier than the related “failure to pay” penalties.
When you fail to file your taxes, you’ll incur a 5% fee on the taxes you owe for the year you haven’t filed. That 5% fee will continue to go up by 5% for every month you neglect to file your tax return. The maximum penalty for failing to file is 25%, which can certainly add up.
When you compare that penalty to the .5% penalty you incur when you file and fail to pay your taxes, you can see why it’s always a good idea to file your taxes. Even if you don’t think you’ll have the money to pay what you’ll owe, a .5% penalty is far easier to bear than a 5% penalty.
2. Don’t Neglect to File an Extension
If you need extra time to file your taxes, just ask for it. The IRS will give you up to a 6-month extension to file your tax documents.
Filing for an extension will help you avoid a failure to file penalty. Tax extension requests need to be filed with the IRS by the year’s general tax deadline (April 15th).
Once you do file, you still need to pay your back taxes on time.
3. Don’t Ignore Letters You Receive
When you owe the government money, the IRS will send you a number of notices in swift succession.
You’ll typically receive 30-day notices, 60-day notices, plus notices to contact an agent and discuss your situation. You can expect letters on a number of tax delinquency-related subjects.
It’s in your interest to fully read and make sure you understand what the IRS is conveying in these letters. Not opening a notice puts you at a disadvantage when it comes to managing your back tax situation.
Many of these notices are automated, which means they’re generated by a computer on a set schedule. Sometimes you’ll receive notices that don’t make sense or contradict what you’ve been told during phone calls with the IRS. Don’t be alarmed. The discrepancy can usually be cleared up.
If you need help making sense of notices from the IRS, contact a tax relief professional.
4. Don’t Ignore the Payment Plan Option
When you contact the IRS in response to a notice, talk to the agent about a payment plan. In many cases, the IRS will offer to let you pay the back taxes, interest and penalties you owe on a monthly basis. You can arrange to pay in installments that fit your budget.
Dealing directly with the IRS when you owe back taxes can be an intimidating process. You may speak with someone who understands your situation and is willing to work with you. But for some IRS agents, you’re just a number and their only priority is to expedite your repayment of the back taxes. They may not have the time or inclination to explain your rights.
Tax law is complicated and if you don’t have experience, it’s difficult to understand. That’s one reason you should consider working with a tax relief professional. We deal with IRS agents every day and we understand the nuances of tax law. When it comes to figuring out how to best pay down and settle your tax debt, a tax relief professional is your best bet.
5. Don’t Downplay the Consequences
We understand that sometimes it feels safer to ignore a tax debt. It’s important to understand, however, that the consequences of inaction are usually greater.
When you owe back taxes and don’t negotiate with the IRS, you can face growing fees, property liens, wage and bank levies, credit damage and more. The IRS has collection tools at its disposal that can make a bad situation significantly worse.
When you take steps to remedy your situation, you won’t regret it. Not sure what step to take first?
Contact a Tax Relief Professional
No matter what your unique situation, a tax relief professional can give you a plan to get your financial life back on track.
We can stop collections so you don’t have to worry about the flow of notices, the threat of liens, levies and more. We can give you back peace of mind by showing you a clear path to freedom from tax debt.
Next Steps If You Owe Back Taxes
Now you know what not to do if you owe back taxes. Doing nothing is often the most damaging, but negotiating with the IRS when you don’t understand tax law and your rights isn’t optimal either.
More people trust Precision Tax Relief with their IRS tax debt, and for good reason! Learn more about the tax relief services we provide to people like you every day. If you have questions about our process, click here and we’ll call you to discuss your options.
Owing back taxes can feel like a financial crisis. With our help, you can get back on track.