Steps to Take If You Owe Back Taxes

IRS | Taxes | Overdue | October 2, 2024

This Week's Quote:

"Count your age by friends, not years.  County your life by smiles, not tears."
       - John Lennon

Owing back taxes can be a stressful and overwhelming situation. Whether you've fallen behind on your income taxes or have unresolved tax debt from previous years, it's essential to address the issue promptly and take the necessary steps to resolve it.

In this blog, we'll outline steps you can take if you find yourself in this predicament. Remember that dealing with back taxes is serious, and seeking professional advice is often advisable.

1. Assess Your Tax Situation:
   The first step is to understand the extent of your tax debt. Review your tax returns for the years in question and gather all relevant documentation, including W-2s, 1099s, and other income-related documents. This will help you determine the exact amount you owe and whether there are any errors on your returns.

2. Contact the IRS or State Tax Authority:
   If you owe federal income taxes, contact the Internal Revenue Service (IRS); if you owe state income taxes, contact your state's tax authority. Ignoring the problem won't make it go away, and it may lead to more severe consequences, such as wage garnishments or asset seizures.

3. Set Up a Payment Plan:
   The IRS and most state tax agencies offer payment plans for taxpayers who cannot afford to pay their tax debt in full. The terms and conditions of these plans may vary, so it's crucial to discuss your options with the respective tax authority. Be prepared to provide financial information to determine the most suitable plan for your situation.

4. Consider an Offer in Compromise (OIC):
   Sometimes, the IRS may accept an Offer in Compromise, which allows you to settle your tax debt for less than the total amount owed. This option is typically available to individuals who can demonstrate financial hardship or doubt that they can pay the total amount. Consult a tax professional to help you assess your eligibility and navigate the application process.

5. File Any Missing Tax Returns:
   If you have unfiled tax returns for the years in question, filing them as soon as possible is crucial. Failure to file tax returns can result in additional penalties and interest. Consult with a tax professional to ensure all necessary returns are submitted accurately and on time.

6. Seek Professional Tax Help:
   Dealing with back taxes can be complex, and the consequences of making mistakes can be severe. Consider consulting a tax professional, such as a certified public accountant (CPA) or a tax attorney, who can provide expert advice, negotiate with tax authorities on your behalf, and help you find the most favorable resolution to your tax debt.

7. Keep Up with Current Tax Obligations:
   While addressing your back taxes is essential, staying current with your ongoing tax obligations is equally crucial. Make sure you pay your taxes on time and, if necessary, adjust your withholding or estimated tax payments to avoid accumulating additional tax debt.

8. Monitor Your Progress:
   Once you've initiated a payment plan or applied for an Offer in Compromise, stay diligent in making payments and adhering to the terms agreed upon with the tax authorities. Keep records of all payments and correspondence related to your tax debt to ensure you're meeting your obligations.

Dealing with back taxes may seem daunting, but taking action promptly is crucial. By assessing your situation, contacting the appropriate tax authorities, and seeking professional guidance when necessary, you can work towards resolving your tax debt and getting your finances back on track.

Remember that every tax situation is unique, so it's  essential to tailor your approach to your specific circumstances.

Credit goes to the dedicated team of editors and writers at Newsletter Station, published June 12, 2024 in the Balance Sheet Bulletin.
 
Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.
 
This Week’s Author, Belinda Stickle