Tax Help for Back Taxes: How to Resolve Your Unpaid Tax Debt
Tax Help for Back Taxes: How to Resolve Your Unpaid Tax Debt
Blog Article
Dealing with back taxes can be overwhelming and stressful, especially when penalties and interest start to pile up. The IRS has several programs and resources designed to help individuals and businesses resolve their unpaid tax debt. Understanding your options and taking prompt action can prevent further financial strain and potential legal consequences. Here’s a guide to Tax Help for Back Taxes and how to get your finances back on track.
What Are Back Taxes?
Back taxes refer to any taxes that remain unpaid after the due date. This can happen if you didn’t file your tax return, underreported your income, or simply couldn’t pay your tax bill in full. The IRS charges penalties and interest on unpaid taxes, which can significantly increase the amount owed over time.
Ignoring back taxes can lead to serious consequences, including wage garnishments, bank levies, property liens, and legal action. Fortunately, there are solutions available to help you manage and resolve your back taxes.
Options for Resolving Back Taxes
- File Past-Due Tax Returns
If you haven’t filed a tax return for one or more years, the first step in resolving back taxes is to file those returns as soon as possible. The IRS requires all tax returns to be filed, even if you don’t have the money to pay what you owe immediately. Filing your returns will stop the "failure to file" penalties from accumulating and shows the IRS that you are making an effort to comply.
If you are unsure how to file for previous years, seek help from a tax professional or use the IRS’s free filing resources.
- Installment Agreements
An Installment Agreement is one of the most common ways to resolve back taxes if you cannot pay the full amount upfront. This program allows you to pay your tax debt in smaller, manageable monthly payments over a set period of time, typically up to six years.
To qualify for an installment agreement, you must:
- File all required tax returns.
- Submit an application to the IRS, either online or via Form 9465.
- Provide details about your income, expenses, and assets if your tax debt exceeds a certain threshold.
Once approved, you must stay current with your tax obligations moving forward, meaning you need to file and pay all future taxes on time while making your monthly payments.
- Offer in Compromise (OIC)
An Offer in Compromise allows taxpayers to settle their tax debt for less than the full amount owed. This option is available to individuals and businesses that cannot pay their tax debt in full and demonstrate that doing so would create financial hardship.
The IRS considers factors such as your income, expenses, and asset equity when evaluating an OIC application. The application process is detailed and includes submitting Form 656 along with a $205 application fee (though the fee may be waived for low-income taxpayers).
While the Offer in Compromise can be a helpful tool for those facing significant financial difficulties, it’s important to note that only a small percentage of OIC applications are approved. Consulting with a tax professional may improve your chances of success.
- Currently Not Collectible (CNC) Status
If you’re facing extreme financial hardship, you may qualify for Currently Not Collectible (CNC) status. This status temporarily halts IRS collection efforts, such as wage garnishments and bank levies, because paying your tax debt would prevent you from meeting basic living expenses.
To apply for CNC status, you will need to provide detailed financial information, including income, expenses, and assets. While CNC status stops active collections, interest and penalties will continue to accrue on your unpaid tax balance. The IRS may also review your financial situation periodically, and if it improves, they may resume collection actions.
- Penalty Abatement
The IRS charges penalties for late filing, late payment, and failure to pay. However, under certain circumstances, you may be eligible for Penalty Abatement, which can reduce or eliminate these penalties.
First-time penalty abatement is available if you have a history of filing and paying your taxes on time but missed a deadline due to a reasonable cause, such as a natural disaster, serious illness, or a death in the family. You can request penalty abatement by calling the IRS or submitting a written request explaining your circumstances.
- Taxpayer Advocate Service (TAS)
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers resolve issues they cannot handle on their own. TAS can assist with problems such as delays in processing your tax return, difficulties in setting up a payment plan, or resolving disputes with the IRS. TAS provides free help, but they usually only take on cases that are causing significant financial hardship.
Seek Professional Help
If you’re unsure how to resolve your back Tax Help for Back Taxes is complex, seeking professional help from a Certified Public Accountant (CPA), enrolled agent (EA), or tax attorney can be beneficial. These professionals can guide you through the process, help you apply for relief programs, and represent you in dealings with the IRS.
Conclusion
Back taxes can be intimidating, but there are many options available to help you resolve your unpaid tax debt. Whether you need a payment plan, want to explore tax forgiveness options, or require penalty abatement, the IRS offers various programs designed to make it easier for taxpayers to manage and settle their tax obligations. By taking proactive steps and seeking the right help, you can regain control of your financial situation and avoid further complications Report this page