Paying taxes is a civic responsibility that we all have to fulfill. It is an essential aspect of contributing to the welfare and development of our nation. Unfortunately, many taxpayers, particularly the self-employed or those with various income streams, make the big mistake of avoiding paying their back taxes. While it may be tempting to ignore the problem and hope it resolves on its own, doing so only worsens the situation.
This article will discuss the potential consequences of failing to pay back taxes and some expert tips to resolve the issue.
What Are Back Taxes?
Back taxes are taxes you owe to the IRS that was not fully or partially paid during the previous tax year when they were due. Taxpayers may fall behind on their taxes for various reasons, such as forgetting to pay after filing a return, not reporting all income earned, or failing to file a tax return. The IRS imposes interest and penalties on unpaid taxes until the amount is fully paid. These back taxes can be assessed locally, state, or federally.
Why do Taxpayers Avoid Paying Back Taxes?
There are several reasons why taxpayers avoid paying back taxes. One of the most common reasons is due to financial hardship. Taxpayers may face difficult financial situations, such as job loss, illness, or unexpected expenses, preventing them from paying their taxes. Others may simply forget to pay their taxes, while some may intentionally avoid paying to evade taxes.
Whatever the reason is, failing to pay back taxes is a huge mistake that can lead to severe consequences, making your situation even worse in the long run.
Consequences of Avoiding Paying Back Taxes
The consequences of avoiding paying back taxes can be significant and long-lasting. Here are some of the potential consequences that taxpayers may face:
You will incur penalties and interest.
The IRS will impose penalties and interest charges on your unpaid tax debt. The longer you wait to pay, the higher the penalties and interest will be, making it increasingly challenging to settle your debt.
The IRS may garnish your wages.
If you have unpaid taxes, the IRS can garnish your wages to pay off your debt. The agency will require your employer to withhold a portion of your paycheck until your tax debt is resolved.
The IRS can impose liens and levies on your property or bank account.
The IRS may place a lien on your property to collect unpaid taxes or levy your bank account. A tax lien on your property means you won’t be able to sell it until your debt is paid off. A levy on your bank account means the IRS will access your funds to pay down your debt until it is satisfied.
The IRS can place restrictions on your passport.
If you owe more than $59,000 (adjusted annually) in back taxes and have not made any payment arrangements with the IRS, they can label you as ‘’seriously delinquent’’. This can result in the State Department placing restrictions on your passport. However, if you are still applying for a passport, they may deny your application or refuse to renew it.
It can damage your credit score.
Failing to pay your taxes to the IRS can hurt your credit score. As a result, it can make securing loans, credit cards, and other financial products more challenging. A lower credit score can also result in higher interest rates. Thus, making it more expensive to borrow money in the future.
You may face legal action.
If you continue to avoid paying back taxes, the IRS can take legal action against you. This can include filing a lawsuit or even pressing criminal charges. Legal action can lead to significant fines, penalties, and even imprisonment, making it crucial to address your tax debt as soon as possible.
Steps To Take Resolve Back Tax Issues
When faced with back tax issues, it is essential to take prompt action to avoid further penalties and interest. Here are some steps you can take to resolve your back tax issues:
1. File Unfiled Tax Returns
Having unfiled tax returns can hamper your effort in resolving tax-related issues; therefore, addressing them as soon as possible is crucial. It’s worth noting that if you want to resolve your back taxes, all your tax returns must be filed and up-to-date.
In addition, unfiled taxes can result in additional interest and penalties. So, it’s advisable to file your tax return even if you’re unable to pay what you owe to the IRS
2. Settle Your Tax Debt
The quickest and most straightforward way of resolving back taxes is to pay the entire amount owed in full. By doing so, you can avoid interest and penalties and prevent further collection actions by the IRS. Once you’ve paid your taxes, the IRS will release any liens or levies on your assets.
However, if you don’t have the financial means to pay your outstanding debt in full, the IRS offers several payment plans that allow you to pay your tax debt over time.
3. Seek Professional Help
We highly recommend that you seek professional help when dealing with the IRS. Attempting to resolve tax issues without professional guidance is like going to court without a lawyer. Tax professionals, such as CPAs, enrolled agents, and tax attorneys, can help guide you through the maze of dealing with the IRS and ensure you take the necessary steps to resolve your tax debt.
At our tax resolution firm, we can assist you in navigating various options to resolve your back tax issues. The IRS offers several debt settlement options, such as the Fresh Start Initiative, and is generally willing to work with taxpayers who cannot pay their entire tax debt.
If you owe back taxes, taking action as soon as possible is crucial. This way, you can avoid further penalties and collection efforts by the IRS. By working with a tax resolution specialist like Peace of Mind Tax Help, you can explore payment plans and other options to resolve your tax debt and prevent future problems.
If you are looking for an expert tax resolution professional to help you navigate the IRS maze, our firm is here to help. Contact us for a no-obligation, confidential consultation to discuss your options for permanently resolving your tax problem.