If you didn’t pay your taxes on time or didn’t file a tax return, you may owe back taxes. With penalties and interest, this debt can quickly add up. You do, however, have options.
Discover how to completely wipe IRS back taxes from your record and get back into good standing with the IRS. It’s possible!
What are IRS back taxes?
IRS back taxes refer to unpaid or partially paid taxes, typically from previous years. You can owe back taxes on the local, state, and federal levels.
You may owe the IRS back taxes for many reasons, including capital gains tax from selling securities or underreporting their income.
IRS back taxes can quickly snowball if they’re ignored for too long. If you missed the filing deadline or failed to request an extension, the amount owed begins to accrue IRS penalties.
How to file IRS back taxes
Filing back taxes can be intimidating, especially if you aren’t sure where to start, how far back to go, or what you’ll need. Don’t worry; we’ve got you covered!
When filing back taxes, you need all of your basic tax and financial information to get the process started—just like you would for a regular tax return.
The IRS will need to know about:
- Investment income
- Past wages
- Unemployment benefits
- Freelance income for the appropriate years
If you’ve got all this information stored safely and categorized by year, you’re already well on the road to recovery. On the other hand, if you misplaced tax forms or financial information from previous years, the IRS recommends using the wage and income transcript to view old W-2s, 1099s, and other tax forms provided by employers.
The wage and income transcript will contain the same data as your previous employers’ information returns. It’s only available for 10 tax years, including the current year at the time you request the transcript.
How many years of back taxes can you file?
The IRS recommends that you file back taxes for all years, but the requirement to be considered in “good standing” is 6 years of previous tax returns.
To claim a refund for a prior year, you’ll need to file within 3 years of the original due date.
Consult with an experienced tax lawyer to confirm whether the IRS is looking for only 6 years of your tax returns. In some situations, the IRS may request that you file older returns, as well.
These are the most common reasons the IRS would require returns from more than 6 years back:
- A large tax bill exists on an older return
- There are business returns involved
- A revenue officer has been assigned to the case
Gathering the necessary information and filing years of prior unpaid taxes can be a hassle, but it’s worth it. If you have been on the IRS’s naughty list for too long, they can start to collect the debt by any means necessary.
Penalties for unpaid taxes
While the IRS does give you the chance to take care of any unpaid taxes from prior years, they don’t appreciate being ignored. If the amount you owe has piled up over the years and there has been no effort to correct your mistakes, the IRS can apply tax levies to collect your debt.
The most common tax levies the IRS can apply are:
- Wage garnishment: Your employer will be required to hold a percentage of your income to repay your IRS debt
- Bank levies: The IRS will contact your bank and place a hold on your account
- Property seizure: The IRS will seize personal assets (i.e., house, car, boat)
Tax levies come with plenty of warnings before the process begins. You will receive multiple IRS notices requesting your payments, and it’s best to respond as quickly as possible.
How to pay back taxes
The amount of IRS back taxes you owe can be overwhelming, but the IRS does provide a few options for tax relief.
In certain situations, if the applied tax levy placed your financial situation in “severe hardship,” the IRS may stop the levy. The IRS defines the prevention of meeting basic and reasonable living expenses as severe hardship.
Installment agreements allow you to break down your taxes due including interest and penalties, into monthly payments. The IRS will cease all levies and forced collection against you once an agreement has been reached.
An IRS Offer in Compromise, or OIC, is another option for taxpayers to reduce IRS back taxes. This arrangement with the IRS is made to pay a small amount of the outstanding tax debt when they are unlikely to collect the full amount.
For example, our tax lawyers helped one of our clients eliminate $45,000 of tax debt using an IRS Offer in Compromise!
Hire an experienced tax attorney
The chances of getting back into the good graces of the IRS may seem slim. However, there are options available to taxpayers looking to get out of the shadows of debt.
We highly recommend contacting an award-winning tax lawyer at Gordon Law Group to help you start your road to recovery.