If you've been negligent in filing tax returns over the last few years, you could very well owe money to the IRS in back taxes. Even if you're up to date in filing, you could still owe money if you haven't been diligent in paying the taxes that were due. Either way, there's no time like the present to figure out how much you owe the IRS and liquidate your debt. The following steps can help you calculate back taxes and settle your account.
Gather Tax Returns for Which You Owe Back Taxes
Step one is to gather all tax returns for which you owe back taxes. Each return will give an account of what was owed for that year so you'll know what needs to be paid. By adding these figures together, you can get an accurate picture of your outstanding debt to the IRS.
If you don't have copies of past returns, ask your accountant to make copies from his files. In the event you filed on your own, you can request duplicate copies from the IRS.
File Past-Due Returns
If the problem lies with your failing to file, you'll need to catch up by filing past due returns so you can calculate what you owe. When filing past returns, use the forms, schedules and directives that correspond with the particular year you're filing for, i.e. 2015 forms for your 2015 tax return. You can download past forms from the IRS website and complete them manually and send them in. Or you can use tax prep software like TurboTax to file your back taxes. You'll have little trouble accessing the past forms you need at the TurboTax website.
Calculate Penalties and Interest
Late tax filings are subject to interest payments and penalties. You can find out the interest rate and penalties you have to pay on the IRS site. When calculating back taxes, be sure to include interest and penalties in your debt so you will be completely up to date in paying back taxes.
Liquidate Your Debt
The longer you wait to pay a tax debt, the larger it becomes due to accruing monthly interest fees and penalties. Once you've calculated the amount you owe, start making arrangements to get it paid off. If your debt is small, try to liquidate it all at once. If your debt is large and you're financially incapable of paying it off in a lump sum, talk to the IRS to see what can be worked out. The IRS may allow you to pay off your debt in installments. Once you agree to a payment plan, stick to it. You don't want to be subject to unpleasant IRS collection methods to pay your debt.
If you owe back taxes, make it your New Year's resolution to pay off your debt. With the help of a financial advisor from David Yeomans Accounting Service, you can resolve financial issues with the IRS and start the year off with a clean slate. Contact us today for all your financial management needs.
Peter J. Marchiano, Jr., CPA