How to settle Your IRS Back Taxes
There are plenty of reasons why you may not be able to file your taxes on time and when it comes to your IRS back taxes, know that there will always be options to take to get you quickly out of your tax troubles. You must know that under the Internal Revenue Code, failure to pay your taxes on time can make you face various degrees of penalties – from civil fines to a criminal tax evasion case that will lead to imprisonment. Your IRS back taxes shouldn’t give you all those fears by simply understanding the process, of what you can do for you to set your records straight.
What to Expect When You Have IRS Back Taxes
You must understand that not filing your taxes on time with the IRS ( Internal Revenue Service ) comes with consequences, namely:
1. Penalties and interests computed on your total tax amount due
2. IRS filing a substitute return for you, where you may not be eligible for tax credits or other forms of exemptions
3. Having your income or bank accounts placed under a levy, or having a federal tax lien on your property
What Types of Penalties You Will Have on Your IRS Back Taxes
According to the IRS, typical penalties when you file your IRS tax return late are:
1. Late Filing Penalty – where you file after the due date or after the extension due date is up. Penalty will be five percent of each month that you missed, which can be no greater than 25 percent. Filing your tax return for more than sixty days after your filing due date will have you pay a minimum of $ 100.
2. Late Payment Penalty – happens when you fail to pay your taxes on time. This fee will increase to one percent each month for any tax that remains unsettled, if a demand for immediate payment is sent. Normally, it will start at a rate of 0.5 percent each month.
3. Combined Penalty – this happens when you file late and make late payments, or a combination of items 1 and 2.
4. Penalty for Substantial Understatement – which is also an accuracy related penalty, happens when you state a tax amount that is lesser than what it should be. By not stating all relevant facts, you may have a penalty of 20% on your net understated tax. You may correct this by filling out the IRS Form 8275.
5. Penalty for Negligence and Disregard of the Rules and Regulations – means your intentional attempt to disregard existing internal revenue laws, preparation of tax return, and book and record-keeping needed for filing taxes. Even careless or reckless disregard of the law excuses no one, unless there is a reasonable excuse why it was done.
6. Civil Fraud Penalty – happens when you underpay your taxes due to fraud, which is subject to a criminal investigation, with possible civil sanctions and criminal prosecution. A penalty of 75% of the underpaid amount will be charged.
7. Frivolous Tax Return Penalty – is made when you and/or your spouse made a frivolous desire to delay or interfere with the processes of the federal tax laws. This may even include altering the IRS form , which can cause you and your spouse a penalty of $5,000 each.
8. Bounced Check Penalty – happens when you write a check that bounces. The penalty will be two percent of the check amount, or $25 if the check is less than $ 1,250 ( whichever is lower between the two ).
How Can You Resolve Your IRS Back Taxes Issue
You need to get all important tax documents that you keep and prepare your tax return. If you need help, you may hire a tax professional or get free assistance from the IRS through email, telephone, fax, or in person. You may also tap into the Volunteer Income Tax Assistance program or VITA, where volunteers will help you prepare your tax returns and file these for you electronically. This service is free of charge to low or middle-income earners. You need to make a sound plan on how you can pay for the back taxes that you owe and how you can save yourself from an investigation, a levy, or a lien. Never ignore the IRS or you may suffer heavy consequences.
What are Your Payment Options in Settling Your IRS Back Taxes
1. Cash – which is made in person at your local IRS office.
2. Check, Money Order, or Cashier’s Check – must be payable to the United States Treasury or US Treasury, which must come with data like your social security or employee identification number, tax form number, and tax period. Mail this to the address stated on the notice you receive.
3. Electronic Payment – is done through a debit or credit card, where payments can be made 24 by 7. This option is convenient and safe to use. You may also enroll in the US Treasury’s EFTPS ( Electronic Federal Tax Payment System ) where you can withdraw funds for free. For more details on this program, you may call this toll-free number: 1-800-555-4477, or see IRS Publication 966.
In the end, knowing the provisions of the Internal Revenue Tax Code truly helps, specially when ignorance is not an excuse. Know that late tax returns are best filed on paper, mailed to your local IRS. You can send this through a certified mail, where you will receive a proof when your mail was received. If time really is running out, you may just run for it and head towards the nearest IRS office in person. Don’t forget to photocopy your tax return and have it stamped as a proof of receipt. File your taxes on time to avoid IRS back taxes!
RESOURCES:
Perez, William. “ Back Taxes: Filing Late Tax Returns. “ January 2009. About.com.
http://taxes.about.com/od/taxtrouble/a/back_taxes.htm
IRS.gov. “ What Will Happen if You Don’t File Your Past Due Return or Contact the IRS. “
March 2009. http://www.irs.gov/businesses/small/article/0,,id=108330,00.html
IRS.gov. “ Payment Options: Ways to Make a Payment. “ March 2009.
http://www.irs.gov/businesses/small/article/0,,id=174251,00.html
IRS.gov. “ Getting Free Help. “ April 2008.
http://www.irs.gov/businesses/small/article/0,,id=174271,00.html
IRS.gov. “ Avoiding Peanlties and the Tax Gap. “ March 2008.
http://www.irs.gov/newsroom/article/0,,id=181068,00.html
