Personal Finances

5 Things to Know About Filing Back Taxes

Every year, around 7 million taxpayers fail to file their taxes on time. If you’re one of them, burying your head in the sand is never a good idea. 

Sure, we know filing back taxes can be a huge headache. But failing to pay the Inland Revenue Service (IRS) can leave you open to penalties, extra interest, or even having your assets seized.  And luckily, there’s a lot of information out there to help you through the process. 

Keep reading to learn our top tax tips and reasons to tackle your back taxes today! 

1. Consider Hiring a Tax Lawyer

If you’re late paying because you don’t know how to file your taxes, hiring a tax lawyer is a smart move. Thanks to their expert knowledge of tax codes, credits, deductions, exemptions, and the like, they’ll be able to help you navigate the complex system of back taxes. And, if you have a tax dispute, your tax lawyer will be able to represent you. 

2. The IRS Might Owe You

Filing your taxes doesn’t always mean finding out how much extra you have to pay the IRS this financial year. Sometimes, it’s the IRS who owes you money.

While the IRS withholds federal income taxes from most people’s paychecks, sometimes they withhold too much. In these cases, finally tackling your back taxes could mean receiving a tax refund rather than having to pay out more. 

3. Most Loan Applications Request Tax Returns

Almost all types of loans, from mortgages to student loans, require some form of income verification as part of the approval process. Filing your tax returns long before you might need to apply for a loan for your business, children, or some other reason will ensure a smoother and less stressful loan application process. 

4. Late Filing Penalties and Interest Soon Add Up

Filing your taxes late incurs a minimum penalty of $205. If you owe less than that in back taxes, this is now the full amount you owe. For every month that you don’t file your taxes, your unpaid tax bill will increase by 5 percent. The IRS also charges interest on overdue taxes. And, while penalties for late payments stop accruing when your penalty reaches 25 percent of the amount you owe, the interest doesn’t stop accruing.

5. Tax Debts Are Collectible for a Decade

So you’ve managed to avoid filing your taxes for a few years. This doesn’t mean you’re off the hook. The IRS has every legal right to collect tax debts that are up to 10 years old. This means it’s always best to file any back taxes you might owe before they come looking for you. 

What to Know About Filing Back Taxes

As these quick facts show, filing back taxes sooner rather than later is often preferable to paying penalties, incurring interest, and risking your future financial freedom. 

And remember, while April 15th might feel far away now, tax season will be on us again before you know it!

Want more informative tips and news updates? Be sure to check out our other posts for all the latest on everything from finance to fitness!


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