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Have you filed your returns but didn’t have the money to pay what was owed? Back taxes aren’t something that you should get familiar with but our tax professionals here at Bodine Perry are here to explain what exactly back taxes are and how you can avoid falling into the trap…

What are back taxes?Income tax

Back taxes sound like they might not be complicated but if you are dealing with them, it can be a pretty intricate and time consuming matter. Back taxes are taxes that were owed during a specific year that weren’t paid during that year. The IRS has a total of 10 years to collect back taxes and within those 10 years, they have several ways to try and collect from you. For example, the IRS can collect the taxpayer’s income to reclaim the unpaid taxes and even enforce monthly penalties to try and get you to pay sooner. Avoid putting yourself in the back taxes category if you can. Here are some suggestions to help you do that…

Pay your IRS bill

Paying off your bill as soon as you can will actually end up saving you money in the long run. Even if you can’t pay it off in full, pay as much as you can in order to lower the interest rates and avoid penalties that may be charged against you for late payment. You might consider using a credit card or looking into a loan to pay off what you owe.

Apply for a short-term extension or a monthly payment plan

If you can pay in full within 120 days or less, you should be able to meet the requirements to receive a short-term extension. Apply online HEREat IRS.gov. For some it can be easier to pay month to month. If this is the case, a direct debit payment plan might be a good idea. The monthly payment plan is convenient and cost effective. Apply online HERE.

Offer in compromise

You might want to consider an offer in compromise if you can’t pay your taxes in full. What is an offer in compromise? An OIC lets you settle your tax debt for less than the full amount that you actually owe. Of course the IRS takes into consideration certain facts and resources such as:

  • Income
  • Expenses
  • Ability to pay
  • Asset equity

The IRS suggests to explore all other possible payment plan options before sending in an OIC. An offer in compromise is usually approved when the amount offered shows the most that the IRS can expect to obtain within a feasible amount of time. Some often hire a tax professional to assist in filing an offer.

Make changes to your withholding

Withholding more taxes from your pay might help you avoid owing the IRS in future. All you have to do is file a new W-4 form with your employer. If you have income that isn’t applicable to withholding you may have to make estimated tax payments. To calculate your estimated tax you must approximate your expected gross income, taxable income, taxes, deductions and credits for that year.

 

Back taxes are expensive, time consuming and can cause even greater hassle when it comes to dealing with the IRS. Our experts here at Bodine Perry can work with you to help you avoid falling into the trap of back taxes. Don’t end up years behind in taxes. Call us at (855) 851-8318 or visit bodineperry.com.

 

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