What are Back Taxes?

What are Back Taxes?

Have you ever been in a situation where you owed back taxes? If you are reading this article you might have a past due balance to the IRS or unfiled tax years. You can owe back taxes to a local, state, or federal level. Back taxes accumulate interest and penalties that snowball into large amounts on a regular basis. Unpaid taxes or unfiled taxes are not uncommon. However, disregarding your back taxes can put you at a deficit with the IRS or State and cause serious financial issues. 

Understanding Back taxes

Back taxes refer to taxes owed from previous years. There are multiple reasons why a taxpayer can fall behind on taxes. Those reasons may be intentional or unintentional reasons such as filing a tax return and failing to pay back taxes, failing to include all incomes during a specific tax year, neglects to file a tax return. Failing to file a tax return can result in the IRS doing a Substitute for Return (SFR) this is where the IRS will maximize your income without deductions and file your tax return. 

Back taxes can be a serious problem for a taxpayer who doesn’t have the financial capability to pay the IRS and depending on your situation the government can take action to deal with your back taxes such as demanding the taxpayer pay immediately, pressing charges, and sometimes offerings voluntary disclosure program that helps avoid criminal charges. Failure to pay taxes can also involve imprisonment. 

How to Resolve Back Taxes

Paying your back taxes in full is the best option although it’s not always convenient the IRS payment plans or installment agreement may not always be best for the taxpayer long-term. 

Utilizing the IRS Fresh Start Program that was created by the government to help taxpayers pay back taxes owed can be beneficial, most taxpayers don’t know which program to apply for and each program has a set of criteria and can be confusing for most people. 

To achieve the best tax resolutions in regards to your case, it may be in your best interest to hire a tax resolution expert like Fresh Tax Solutions to represent you. Fresh Tax Solutions can determine the most effective option to save you money. 

Consequences of Not Paying Back Taxes

The IRS has a wide array of options to discipline taxpayers that owe back taxes and quite frankly will do what it takes to get back the money you owe. 

Interest and Penalties

• Interest accrues on any unpaid tax from the due date of the return until the date of payment in full. The interest rate is determined quarterly and is the federal short-term rate plus 3%. Interest compounds daily.

• The Late penalty payment is 0.5% of the tax owed after the due date, for each month or part of a month the tax remains unpaid, up to 25%

Enforced Collection Activities

Wage Garnishment- happens when a court orders your employer to withhold a specific amount of your paycheck and send it directly to IRS. Tax refunds and inheritance can also be garnished.

Lien- is a statement that the IRS has authority over or rights to assets because of your federal tax liability. By Federal law, the IRS is given an automatic lien on a taxpayer’s property, including personal, real estate, intangible and tangible assets. 

Levy- is a physical seizure of a property to satisfy an outstanding debt. Failing to pay taxes can result in the IRS responding by levying your tax return or property.