Get the Help You Need with Back Tax Assistance

What Are Back Taxes?

Back taxes refer to taxes that have not been paid when they were due. This could be income taxes, property taxes, or business-related taxes. The IRS or state tax authorities can impose penalties and interest on these unpaid taxes, making the debt grow larger over time.

For small businesses, back taxes could also include unpaid payroll taxes, which can result in severe penalties. The longer the debt goes unresolved, the more it can impact your financial health, including your credit score and your ability to secure loans or funding.

Common Reasons People Owe Back Taxes

Understanding the reasons behind unpaid taxes can help you find the best solution for your situation. Some of the most common reasons individuals and businesses fall behind on taxes include:

• Unforeseen Financial Hardship: Job loss, health problems, or other financial struggles can make it difficult to meet tax obligations.
• Lack of Knowledge or Misunderstanding: Some people may not fully understand tax laws or deadlines, resulting in missed filings and payments.
• Poor Record-Keeping: If you don’t have accurate records of your income, deductions, or business expenses, it can be difficult to file your taxes correctly and on time.
• Self-Employment and Business Taxes: For small business owners or self-employed individuals, tracking payroll taxes and quarterly estimated payments can be confusing. Mistakes can result in underpayment and back taxes.

Steps to Resolve Back Taxes

If you’re facing back taxes, taking immediate action is crucial to avoid penalties and other complications. Here are the steps you can take to resolve the situation:

1. File All Missing Returns: If you haven’t filed your taxes for several years, the first step is to submit all missing returns. The IRS can’t assess penalties on taxes they don't know about, so filing these returns is key to addressing your tax debt.
2. Contact the IRS or State Tax Authority: The IRS is often willing to work with taxpayers who are actively trying to resolve their back taxes. You can request a payment plan, negotiate a settlement, or ask for penalty abatement if you have a valid reason for not paying on time. State tax authorities may offer similar options.
3. Set Up a Payment Plan: For many taxpayers, paying back taxes all at once is simply not an option. The IRS offers installment agreements, allowing you to pay the debt in manageable monthly payments. There are several types of plans, depending on the amount owed.
4. Consider an Offer in Compromise (OIC): If you can’t afford to pay the full amount of your back taxes, an Offer in Compromise may be an option. This is an agreement between the taxpayer and the IRS where the IRS accepts less than the full amount owed to settle the debt. However, qualifying for an OIC can be difficult, and you will need to demonstrate that paying your full tax debt would cause significant financial hardship.
5. Apply for Penalty Abatement: If you’ve been penalized for late payments or filings, you may qualify for penalty abatement. This process involves requesting that the IRS or state tax authority reduce or eliminate penalties, especially if you can show reasonable cause for your noncompliance (such as serious illness or financial hardship).
6. Seek Professional Help: Navigating the IRS or state tax processes can be overwhelming, especially if you don’t fully understand the tax laws. Hiring a tax professional, such as a certified public accountant (CPA) or a tax attorney, can help you develop a strategy to resolve your back taxes. They can also represent you in discussions with the IRS, which can relieve a lot of stress.

Options for Paying Back Taxes

Once you’ve filed your returns and set up a plan to address your back taxes, you’ll need to find a way to pay off the debt. Here are some options:

• Installment Agreements: As mentioned, the IRS offers installment agreements for taxpayers who can’t pay their taxes in full. These agreements allow you to make smaller payments over time, but interest and penalties will still apply.
• Lump-Sum Payment: If you have the funds available, paying the back taxes in full can help you avoid additional penalties and interest. This may be the quickest way to resolve the issue and put the problem behind you.
• Borrowing Funds: If you don’t have enough cash to pay the debt, consider borrowing funds through a personal loan, home equity loan, or business loan. While this option may have its own set of risks, it can allow you to pay the IRS and avoid additional penalties.
• Offer in Compromise: If you qualify for an OIC, this is the best option for reducing your overall debt. However, keep in mind that the IRS has strict criteria for approving OICs, so it’s not always a viable solution.

How a Tax Professional Can Help

Dealing with back taxes can be complex and overwhelming. A tax professional can help you in several ways:

• Expert Guidance: Tax professionals have the knowledge and expertise to navigate the tax system, helping you identify all available options to resolve your back tax debt.
• Negotiate on Your Behalf: A tax professional can represent you before the IRS or state tax authorities and negotiate settlements, payment plans, or penalties on your behalf, saving you time and reducing stress.
• Help with Documentation: Tax professionals ensure that your financial records are in order and help you gather all necessary documentation for your case.
• Peace of Mind: Having a tax professional on your side can provide peace of mind and reduce anxiety about dealing with the IRS or tax authorities.