Credit Tips

Back taxes can creep up on the best of us, but that doesn’t mean that we should let them just stay hiding in plain sight. Even if you try to ignore back taxes, they definitely have a way of getting your attention. For one, the IRS has the power to freeze your accounts, garnish your wages, and even put a lien on your property. These measures are designed to get your attention. You definitely want to make sure that you focus on actually getting things in order.

Some credit repair fans might remember something called the statute of limitations, but that doesn’t mean that you’re going to be saved by that at all. On the contrary — until you file your tax return, there’s actually no statute of limitations clock running. That means that the IRS holds the right to collect that money indefinitely. That could mean a very costly battle that you don’t want.

You see, until you file, you’re going to be penalized for not filing — getting the IRS’s attention this way is not wise. You will have a 25% penalty due to failure to file your taxes. If that wasn’t enough, there’s also a 0.5% penalty for failure to pay your taxes — it’s charged from the date that the return and payment were due until the month that you pay the money. There’s also 4% interest per year charged on the money. That means that you’re going to end up paying a lot of money the longer that you hold off on paying your taxes.

So it’s just better to get it all over and done with — but how do you actually get started?

Well, you have to remember that you need to file your taxes by paper if you’re talking about back taxes. While this can be frustrating, the truth is that the online world can still help you out. While you can’t file back taxes online, that doesn’t mean that you can’t use tax software to figure out all of the math. This means that you will also be able to see what your penalties are going to be.

You will probably need to work out a payment plan. You might be surprised at this, but the IRS is actually very willing to work out things with people. Don’t forget that when you go in to turn the paper return to the IRS that you take lots of photocopies. You want to make sure that you have a record of actually what was turned in. There are also local field offices that can take your return. Setting up a payment plan might be confusing at first, but you can handle everything online.

The most important thing that you can do is do whatever you want to make sure that the back taxes issue doesn’t matter again. Now is a slow time of year, and this means that it’s the perfect time to start looking at how you can make your tax time more efficient.

First and foremost, online software is definitely a good idea. Forget hunching over your desk trying to figure everything out for yourself. Let software take care of that for you.  The cost of the software is actually a tax deduction for the next year that you do your taxes, so it actually benefits you in the long run. Just make sure that you save your receipts!

Speaking of receipts, did you know that this is the number one reason that people get slowed down in the first place? They end up thinking that they have all of their records, only to find that they don’t. So they slow things down and end up costing themselves a lot of time in the long run. It’s a lot smarter to make sure that you focus on the things that you can fix.

Yes, you’re going to have to pay the IRS to set up the payment plan, but it’s a lot better than having the interest constantly hanging over your head. And if you show the IRS that you are trying to pay, you’re going to be able to avoid the negative collection efforts. And just in case you’re wondering — it’s very hard to discharge tax debt in bankruptcy. This is another reason why it’s a good idea to pay your taxes as much as possible.

For the self-employed, if you’ve gotten behind in your taxes due to filing problems, make sure that you correct this now. Look into paying your estimated taxes a little more so that when tax time comes around, you might even have a refund. It’s a lot better for the IRS to actually cut you a check than having to pay them.

Don’t forget your state taxes in all of this, unless you live in a state that doesn’t have a state tax.

That’s about it — be careful out there and make sure that you remember to handle your taxes with care!