What to Do When You’ve Fallen Behind on Your Taxes

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No one plans to fall behind on paying their taxes. But when life is throwing you and your business income a curveball, things happen that you didn't want to happen or plan for.

And it's not an isolated issue either.

Currently, as of the most recent stats, around 11.23 million Americans are behind in their taxes and owe the IRS $125 billion in back taxes collectively.

But there's a difference between being behind on your taxes and actively working towards a resolution and putting your head in the sand and ignoring the entire situation.

So what options are available if you find yourself in this situation?

Work Out Exactly What You Owe and Why

Before you make any other plans or put repayments in place, it’s important to understand exactly what is owed: confirm exactly what is outstanding, what tax years are involved, and whether the issue is unpaid taxes, and/or unfiled returns.

While they might feel like all one big issue, they're not.

Unpaid tax means you've filed, but you owe money.

Unfiled returns mean you might not even have an accurate figure, as you've not filed yet.

So start by finding out where the numbers are coming from, the balance being chased, and what's accurate and what's estimated.

File Any Missing Returns

If there are any years you've not filed for yet, do it with urgency.

This is a priority, and it reduces potential fines or demands for estimated unpaid tax based on figures you haven’t actually submitted.

These estimates may or may not be accurate, nor will they take off any deductions you are entitled to allowances or adjustments, and they will be higher than what you'll actually owe.

So take the time to file an accurate return to get the right figure before you start repayment efforts.

Set Up a Payment Plan or Resolution Plan

Once you know exactly what you owe and your position, then it's time to get a repayment plan in place.

There's no one single option if you're engaging with the IRS and actively working to clear what you owe.

Payment plans will allow you to spread the balance and pay it off over time, so it's more manageable.

You might qualify for options to reduce what you owe or restructure it.

The important part is to choose something realistic.

If you need help resolving back taxes, then it's important to talk to experts who understand the process and give multiple customized options.

This will be especially helpful if things have escalated or you owe large amounts to the IRS.

Stop Penalties and Interest Getting Worse

Linked to the above topic is to avoid accruing fines or penalties when actively paying off what is owed.

This is where things can get much worse really quickly.

Late payment penalties, late filing penalties, and then interest being added will be on top of what you already owe.

The resolution is to talk to the IRS, file any outstanding taxes, and set up a payment plan or look into other options that can help you clear your debt.

If things are serious, you may consider filing for bankruptcy, but this requires consulting with expert advisers that can verify criteria is met — such as the years included being over 3 years old, and the taxes being filed at least two years prior, and the IRS has to have assessed the tax debt at least 240 days prior.

It's not a resolution suitable for everyone, but if you're really struggling and you cannot come to a suitable payment option, this can help you avoid racking up more penalties and fines.