Ways to address back taxes

Financial troubles could lead to financial ruins. Getting behind on bills is one thing, but being unable to pay the taxes you owe, that can have serious implications. Whether you are dealing with temporary financial problems due to a divorce, job loss or illness or have been experience serious long-term financial hardships, it is important to understand what happens when owed taxes are not paid and what can be done to offset these consequences.

When taxes go unpaid for 60 days, these are considered back taxes. When a tax return is filed late, interest is charged on any unpaid balance. For just the late payment, the interest could be as high as 25%. In addition to this, one could also be subjected to penalties for the failure to file and the failure to pay.

Resolving back taxes

To begin, it is essential to ensure that you actually owe. This may include comparing your return to past years and even consulting with a tax professional. Deduction may have been missed. If it is determined that you do owe and you failed to pay this tax debt, the next step it to consider a plan to address this debt. This often means contacting the IRS about developing a repayment plan or negotiating the debt down before collection actions are initiated.

For those in a sudden financial situation, there are other options available. For those with a history of paying taxes on time could request a waiver of penalties. This is typically available for first-timers. Another option is to seek a 120-day extension. This involves setting up an installment payment plan over this period of time. Finally, one could see an offer in compromise. This is an agreement a filer makes with the IRS to settle his or her tax liabilities for less than the amount they owe.

What if you can’t pay?

When one is dealing with extreme financial difficulties, it can truly feel like it will be impossible to deal with back taxes when there are other debts they are dealing with. If one takes the right legal steps, he or she could have this tax debt assessed as currently not collectible. In some instance, it may be possible to discharge these debts if one is filing for bankruptcy.

When tax debt is added to the already burdensome debt in your life, it can feel hopeless. But one should understand that there is hope and a way out. There are legal options available, and by fully understanding your current situation, you could take steps to a better future.