Once you forget to file your tax return, it can become very easy to get into a cycle of not filing or paying your taxes. This can leave you with a significant tax debt. Some people simply wish to forget the past and simply start filing their new tax return without taking care of their back taxes. However, you could end up losing money by doing so.
Reduce Your Tax Debt
Your federal tax debt will not magically get better if you do not take care of it; instead, it will continue to get worse. You will continue to accrue penalty fees and interest on the amount you owe. Eventually, the IRS will also start collective action to get the funds owed to them. By taking control of your back taxes, it is possible to reduce your tax debt and more easily pay it off. If you never filed your tax return, then you should do so.
The IRS files something known as a Substitute for Return when a taxpayer does not file for a particular year. This form is completed using the income information they received from employers and the standard deduction for your filing status and number of dependents. Any other credits and deductions for which you qualify are not approved. This typically leads to you owing more taxes than you should. By filling a tax return in place of the SFR, then you could significantly reduce your tax debt. In many cases, taxpayers find they are actually owed a refund.
In addition to filing your back taxes, it is possible to reduce your tax debt through one of the IRS’ tax relief programs, such as an Offer in Compromise or Installment Agreement. This may reduce some of your burdens and help you to be in control of your situation and not have to worry about any collective action.
When you owe the IRS money from previous tax years, then do not expect a refund for this year’s taxes. The IRS can intercept or take your tax refund to pay for any income taxes for which you are behind through a program known as the Treasury Offset Program. They may also do this for any defaulted student loan payments, state tax, or child support payments. The IRS will provide you with an official notice that the offset occurs. They will state your original refund amount and how much was taken to pay for the tax debt. You have the right to appeal this offset if you feel that you have already taken care of your debt or feel the amount taken was not correct.
To reduce the chance of any tax offset program, it is important that you go ahead and take care of your back taxes. This allows you to be in complete control over what happens to your refund money, even if you do choose for it to be applied to your tax debt. You also will have fair warning whether or not any of your refund will be garnished.
If you cannot pay your entire tax debt prior to filing your tax return, it remains vital that you take care of your past returns and work on negotiating a tax relief settlement to get back in compliance with your taxes. This can help you to be in control while also reducing the risk of an unexpected tax return intercept. If you are unsure how to handle your back taxes, then contact Fidelity Tax Relief. Our tax professionals will investigate your case and discover the best way to handle your tax debt. Learn more about your options by downloading and reading our tax relief guides.