At Accounting & Tax Advisers CPAs, Ltd., we offer a helpful Lombard, Illinois tax service to residents and can provide insight on back taxes, a common issue many Americans face. In this article, we’ll answer, “What does it mean to owe back taxes?” so keep reading to learn more.
Understanding Back Taxes
Back taxes are taxes that a filer owes but does not pay for the previous years. These can accumulate interest each month and penalties, turning into more drastic consequences, such as property seizures and jail time. Even if you’re currently unable to pay your bill, you should file your taxes so you don’t face the “failure to file penalty.”
You have the opportunity to request an extension if you’re experiencing hardship, but an overall failure to act at all may begin the collection process. Circumstances vary based on the severity of the situation. You might not have paid your taxes (filed or unfiled) for any of the following reasons:
- Not understanding how much you needed to pay
- Experiencing financial hardship
- Dealing with a loss or traumatic situation
Filing your taxes is the first step; then you must determine how to pay your tax bill.
What To Do When You Owe the IRS
Fortunately, you have several options if you find yourself owing the IRS for back taxes. One choice is to apply for an Offer in Compromise, showing you’re in a situation that would make paying taxes difficult. Some other paths to consider include the following:
- Contact the IRS about a short-time extension if you can pay what you owe in the next few months.
- Agree to an installment plan with the IRS, but the details of the plan depend on the specifics of your situation.
- Use money from your 401k (that you’ll have to pay back) if your plan allows.
- Ask family and friends for a personal loan if you have the resources.
- Make payments through your credit or debit card to pay off over time.
Meeting with a tax advisor can also help you determine which method would work best for your circumstances. When you know more about, “What does it mean to owe back taxes?” you can get on the right track.
What Are Tax Liens?
Tax liens are when federal, state, and local governments may force an individual to pay taxes by liening their assets. When they don’t make the payment, the government can seize physical property, cars, bank accounts, and more.
If this applies to you, you can remove the lien once you make your owed tax payments (or the statute of limitations expires). Before it gets to this point, seek the guidance of a tax professional or advisor. They can assess your situation and point you in the right direction.
Contact Lombard’s Trusted CPA Firm for Assistance with Your Taxes
Now that we’ve answered, “What does it mean to owe back taxes?” contact Accounting & Tax Advisers CPAs, Ltd. for any of your other accounting and tax needs. We proudly serve Lombard, IL, and the surrounding areas. You can call us today at (630) 932-9600 for more about taxes and finance.