Tuesday, April 15, 2014

What Does Owing Back Taxes Mean for You? Interest, Penalties, and Repayment Options Explained

The two little words "back taxes" can strike fear into the heart of even the most diligent taxpayer... But with all the hype and stigma surrounding the issue of IRS back taxes, it can be hard to understand what it really means when you find yourself in the situation of owing back taxes. Put all of that confusion and anxiety behind you by finding out what this means in terms of interest, penalties, and repayment options. When you owe back taxes, you don't have to just lay down and let the confusion overwhelm you: A bit of general knowledge can go a long way toward getting you on the right path toward paying back taxes and restoring your financial future.
Whether you accidentally omitted income from your 1040 form or you erroneously claimed an exemption that didn't apply to you, mistakes happen when you're filing tax returns. If you've ended up stuck owing back taxes here's what you need to know.
Interest is charged on your outstanding taxes from the due date for filing your tax return until the taxes are paid in full. Even when reasonable cause has been established for late payment of your taxes, this does NOT typically stop interest from accruing. For this reason, paying your back taxes owed as soon as possible will help limit the total amount due to the IRS by keeping interest at a minimum.
In addition to the interest charged on your owed taxes, the IRS will also apply late penalties. These charges are above and beyond the interest (usually around 4%) and can even accumulate to a maximum of 100% of the tax owed!
Keep in mind that if you don't take steps to pay your tax debts, the government will take action to assure they receive the money they are owed. The IRS can place a lien on your property, levy bank accounts, and even garnish your wages, essentially seizing the total taxes, interest, and penalties you owe. The good news is that such aggressive steps are typically only used as a last resort, and there are numerous other routes you can take to settle your back taxes problems. Each situation is different, and not all back tax help solutions work for every taxpayer, so consulting a qualified tax lawyer may help ensure you're moving in the right direction. Among the options available to you, the following may apply to your circumstances:
  • Offer in compromise
  • Installment agreement
  • Innocent spouse relief
  • Penalty abatement
This is a general overview of back taxes situations and does not constitute legal advice. For personalized information on how to deal with your specific state or IRS tax problems, you may want to contact a tax attorney or CPA in your local area.
Remember, owing back taxes isn't the end of the world. We all make mistakes, and this one doesn't have to ruin your financial future. Take the appropriate steps to settle with the relevant tax authorities or pay your tax debts in full as soon as possible to get your finances back on track.

Article Source: http://EzineArticles.com/6427552

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