Understanding the Basics: What Are Back Taxes?

January 20, 2020

Did you get an ominous, frightening letter in the mail from the IRS stating that you owed them money? This is a serious problem that can cause issues if not resolved, particularly if you owe extensive back taxes. We’ll take a look at what these taxes are, what to do if you have them, and how Geaux Tax Resolution can help you.

What Are Back Taxes?

Essentially, these are taxes that were not paid in the year that they were due. Failure to pay these taxes in a timely manner will result in accrued interest and penalties from the IRS.

If you have unpaid taxes, you’re not alone—there are an estimated 18 million Americans behind on tax payments, and we can assure you that the IRS is very serious about ensuring that these taxes are paid.

Back taxes are typically seen if:

  • A return was filed, but the taxes were not paid
  • All income was not reported
  • A tax return wasn’t filed at all

The IRS will assess penalties for any taxes that you have not paid. If you owe the IRS, ignoring the problem won’t help–in fact, it will only make matters worse. Did you realize that the IRS has 10 years to collect any taxes you owe?

Penalties for Not Paying Back Taxes

The problem of back taxes will not go away on its own, and the IRS charges interest every month that you are late. That interest can eventually add up to as much as 25%!

If you have back taxes that you have not paid, the IRS will send you a notice. If the taxes remain unpaid after several notices have been sent, then penalties will continue to accrue. Remember that the IRS can charge a minimum penalty fee of $135, and this is in addition to the interest that is on the account.

Interest

Interest is charged every single month that the tax remains unpaid. It starts at 0.5 percent but can increase to 25%. As the interest piles up, the amount owed increases, and, as a result, the interest payment becomes higher—creating a “snowball” effect as fees continue to grow. For many Americans, this scenario is all too real.

What Can the IRS Do to Collect Unpaid Taxes?

Make no mistake: the IRS is a powerful agency, and they have many ways to ensure that they get the money that is due them.

Taking Your Refund

If, in later years, you actually get a tax refund, the IRS can take it in order to collect past due taxes.

Seizing Assets

This means the IRS could place a federal tax lien on your property, and if you do not pay the taxes, the IRS could take your assets. This can also damage your credit, as a tax lien will show up on a credit report and can remain there for up to 10 years.

Garnishing Wages

The IRS can take money directly out of your paycheck to ensure that they get the amount they are owed. In addition, they can also seize money from financial accounts in order to receive the amount owed.

Levying Your Bank Account

This means the IRS can take money directly out of your bank if you owe them money for past unpaid taxes.

Pressing Charges

The IRS can demand that the taxpayer immediately settle the amount owed. If this is not successful, and if the IRS has determined that the individual is willingly and deliberately committing tax evasion, the result can be prison time.

The only way to handle this is to attack the problem immediately with the help and advice of experts.

Why Do People Have Unpaid Taxes?

There are some estimates that as much as $83 billion is owed to the IRS in unpaid taxes, and you can be sure that the IRS is going after those who owe the government money.

There are different reasons someone may owe past unpaid taxes. Often, it’s not an effort to be evasive or to disobey the law. Many times, it just happens to regular people who have fallen upon challenging times.

Overwhelmed

Some Americans are just too overwhelmed by the amount of paperwork that has to be completed to properly file taxes and simply avoid the issue. They may have demanding jobs or family obligations that cause them to overlook the importance of filing and paying on time.

Procrastinating

Putting off doing taxes “until tomorrow” can easily add up to months and then years. The longer someone procrastinates, the more daunting the task of filing becomes.

Life Events

A divorce or death in the family can disrupt life, and often this means that taxes are not filed or not paid.

Illness

Cancer, heart attacks, and even mental health concerns can all play a role in someone’s ability or availability to complete, file, and pay their taxes.

Self-Employment

Today, it’s easier than ever to start your own business or earn money freelancing. However, realize that if you are self-employed, your taxes aren’t withheld throughout the year.

This means if you haven’t set aside money during the year, you could be hit with a huge tax bill. In a situation like this, it’s easy to get behind and feel like you’ll never catch up.

Job Loss

It can be demoralizing to lose a job, and when someone is unemployed, it can be difficult to pay taxes and often all too easy to let the bills accrue.

Each of these cases started as missing one simple tax deadline, or payment can easily accumulate into multiple years and thousands of dollars.

Different Types of IRS Penalties

Unpaid taxes are only one of the many types of IRS penalties, and if you don’t have someone who is in your corner who understands tax law and policy, you could experience a lot of frustration and stress.

Following are just some of the examples of situations where the IRS may assess an additional charge:

Paying Late

If you owe tax and failed to file and pay on time, you’ll owe interest and penalties. This is why it’s so important to pay your taxes on time, if at all possible.

Filing Late

Filing late and paying late are two different types of penalties. This is why it’s important to file even if you can’t pay the taxes. Remember that interest will continue to accrue on top of these.

Taking Early Withdrawals

Do you have a 401k plan with your employer, but you had to withdraw money from it because you were hit by hard times? The IRS will assess a penalty on that. It will also penalize you for making an early withdrawal from IRAs or other retirement accounts.

Do You Owe Back Taxes? 

Contact Geaux Tax Resolution in Lafayette and Mandeville, LA, for help. We understand that there are few things worse than getting a frightening letter from the IRS or being harassed by phone calls that demand payment. Let us put our 35 years of experience to work for you and find a resolution for your situation.