Back Taxes Owed
Back taxes refer to taxes owed from a prior year. A taxpayer may be behind in paying taxes for intentional or unintentional reasons. Some of these reasons include—filing a return and failing to pay the tax liability; failing to report all income earned during the tax year, and; neglecting to file a tax return. If the taxpayer doesn’t file a tax return, the failure to file penalty is 0.5%(subjected to case to case) of the amount dueup to a maximum of 25% of unpaid tax.
Owing taxes can be stressful, especially if you can’t pay on time. In most cases, you’re not going to prison for tax evasion, rather your financial liability will be increased in the form of Interest’s and penalties.
Even if you can’t pay by tax day, you should still file your return or at least file for a six-month extension. Then, review your options for how you can pay the IRS what you owe.
What to do if you owe the IRS:
Understanding your financial Strengths reviewing your options will help you determine what to do if you owe the IRS. That way you can come up with a plan. Here are some of the most common options for people who owe and can’t pay on single instance.
1. Set up an installment agreement with the IRS:
Taxpayers can set up IRS payment plans, called installment agreements. The type of agreement you can get depends on your situation, including how much you owe and how soon you can pay the balance. You shouldn’t set up an installment agreement if you can pay the balance within 120 days
2. Request a short-term extension to pay the total balance owed:
The IRS will provide up to 120 days to taxpayers to pay their full tax balance.
3. Apply for a hardship extension to pay taxes:
The IRS offers options for people in critical situations, including currently not collectible status and the offer in compromise. For an extension based on hardship, you’ll qualify only if you can prove that paying the tax you owe would cause financial hardship, Decision will be purely based on IRS audit.
4. Borrow from your 401(k):
If your 401(k) plan allows for loan, you are generally limited to 50%, with a $50,000 maximum, and you must repay the money within five years.
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