The Internal Revenue Service (IRS) estimates that approximately ten million taxpayers have not filed their federal returns. This is commonly known as back tax returns. This leads to excess penalties, fees and back taxes for this tax problem. It may appear like a trivial matter when you have unfiled tax returns, but this can have a significant effect on your finances down the line if you don’t act sooner than later and obtain tax help.
There are many reasons why taxpayers fail to file their tax returns and have back tax returns. Sometimes it is just a case of procrastination. Others fail to comprehend the requirements in filing. On the other hand, there are some who knowingly evade their tax liabilities since they cannot afford them. Whatever the case, the IRS tags them all in a single category: the “non-filers.” An attorney who has experience working with the IRS will be able to help you with this tax problem.
Serious enforcement actions are waiting for back tax returns non-filers if they continue to ignore their tax declarations and persistence in breaking the law can also lead to criminal prosecution. That’s why people should pay attention to their taxes and make sure they file their returns. The first step: you must settle your back taxes.
Steps to Settle Back Taxes
- You should quickly determine the last time you filed a return. Once you are guided about the year or years you haven’t filed, you can determine which documents to collect.
- Visit a nearby IRS office to request your previous W-2s, 1099s and any other tax files sent to you in the years you failed to file.
- You should proceed to prepare your taxes as usual. You can even hire a tax law firm to make life easier for you to avoid mistakes and they know what information needs to be gathered and how to obtain it.
- Arrange a payment plan for your debts with the IRS. If you cannot afford to pay all at once, the IRS is kind enough to allow for a installment payment plan.
Negative Implications of Back Income Tax Returns
If you fail to immediately address your back tax returns (unfiled tax returns), your financial and legal situation can become very complicated. Penalties, fees and interest will keep increasing the total amount of your tax due. At worst, these additional fees can become larger than the actual amount owed.
If you haven’t been filing your returns, the IRS will file a substitute tax return for you. But they are not doing you any favors in this case, since they will not include your deductions if you own a business or give you credit for dependents. This can increase your tax liability even further.
After the IRS makes an assessment on your taxes without your participation, they will then proceed to collect your liabilities. Yes, the IRS can do this even without your consent or knowledge. They can place a levy on your salary and your bank accounts. When this happens, you cannot access your financial resources since they will be frozen. The IRS will then get money from your wages and bank accounts to pay your outstanding debts.
This can be very frustrating because you may possibly lose the necessary financial resources to sustain your daily expenses.
Act Quickly on Unfiled Back Tax Returns
Fortunately, it does not have to end badly for your financial situation. You should act immediately to address any tax deficiency or outstanding balance. When you take the time to work on your tax liabilities, you can take advantage of exemptions, deductions and credits which will reduce your tax owed. If you can’t pay the exact amount in one single payment, the IRS will let you negotiate a reasonable monthly payment which will not hamper your daily expenses. All the IRS wants in return is to see your commitment in settling your tax debts related to back tax returns.