The world of taxes is complicated and can be overwhelming for anyone or any business that is not well-educated about taxes. No matter who you are though, taxes have to be paid on the money that you make or if you are a business owner, the money that your business makes. If you do not stay on top of your finances, it can become easy to fall behind or for tasks to fall between the cracks. This may include not paying your taxes on time which can feel very scary if you find yourself in this situation. If you are in a situation where you owe taxes from a previous year, those are called back taxes. Get in contact with a team of professionals such as Cooper Norman to help you navigate the next steps and get in good standing with taxes again.
Back Taxes Definition
Back taxes, in simple terms, are unpaid taxes that an individual or entity owes to the government. These taxes can be from federal, state, or local sources and may include income taxes, property taxes, and even business-related taxes. When you fail to pay the required taxes by the due date, they become back taxes.
How Do Back Taxes Happen?
Back taxes can accrue for various reasons. One common way is through non-payment, which occurs when individuals neglect to pay their tax bills or fail to file a tax return, resulting in owed back taxes. Underreporting is another cause, as inaccuracies in tax return information can lead to discrepancies and underreported taxes. Tax audits conducted by tax authorities can also uncover errors or discrepancies in tax reporting, ultimately resulting in additional taxes owed. Additionally, failing to file tax returns for one or more years can lead to the accumulation of back taxes, making it crucial to address these tax obligations promptly.
Consequences of Back Taxes
- Liens and Levies- A lien can be placed on your assets or they may levy your bank accounts or wages in order to collect the taxes that are owed.
- Penalties and Interest- Governments may charge interest and penalties on the taxes that are owed which just increases the amount of debt that needs to be paid.
- Legal Action- In extreme cases, legal action may be taken that could lead to property seizures and wage garnishments.
How to Resolve Back Taxes
There are a few steps that can be taken to start the process of getting your back taxes taken care of. Firstly, if you have unfiled tax returns, it’s crucial to begin by filing them. This is the initial step in the process, and although you may still owe back taxes, filing the returns is essential to establish accurate records with the tax authorities. Many tax authorities offer the option to negotiate a payment plan or installment agreement, allowing you to pay off your back taxes gradually. It is a great idea to look for professional help to guide you through the process, particularly when dealing with substantial debt or legal actions. In some cases, you might be eligible for an Offer in Compromise, which presents an opportunity to settle your tax debt for less than the full amount owed, providing a potential path to financial relief.
No matter the amount that you owe in back taxes, it is a scary and stressful situation to be in. The sooner you start taking the necessary steps to pay your back taxes, the sooner you can find relief in having them paid. Call us with any questions that you may have and we are happy to help you the best way that we can!