Paying taxes is a way of life. Regardless of the system and rules in place, you’re legally required to comply, so you can stay in good standing on the federal, state and local levels.
Back taxes is nothing more than a term that describes taxes that were not paid when they were initially due.
In addition to filing the necessary forms with the appropriate agency, back taxes can also accumulate both penalties and interest over time. This is why it’s so important to take care of them as soon as possible.
According to the IRS, there are several reasons to file a past due return without delay:
- To limit late payment penalties and interest charges
- To claim a refund if there is one due to you
- To protect future Social Security benefits
- To avoid issues when applying for a loan, such as for the purchase of a home
A 5 Step Process to Paying Back Taxes
Paying back taxes may not be your idea of fun, but it’s not always as challenging as it sounds. Here are five basic steps to take:
- Gather all necessary tax documents, such as W-2s, 1099s, and receipts for deductions and credits
- Request any missing information, such as by using Form 4506-T, Request for Transcript of Tax Return to obtain missing W-2s and 1099s
- Download tax forms for the appropriate year (you must use the forms for the tax year you’re filing)
- Prepare your tax returns (relying on the help of a professional can help)
- Submit your forms and wait for a notice from the IRS stating how much money you owe in penalties and interest
But I Can’t Afford to Pay Back Taxes
Many people avoid filing back tax returns because they’re worried about what they’ll find. They have concerns that they’ll owe a lot of money, but have no way to pay.
If you can’t pay what’s due, you can request an extension from the IRS (for up to 120 days), setup an installment agreement (allowing you to pay over time), or see if you qualify for an offer in compromise (to settle for less than the total amount due).
How a Personal Loan Can Help
Once you know how much you owe, you can formulate a plan for paying your back taxes as to avoid additional penalties and interest.
If you don’t have enough cash on hand – perhaps because back taxes snuck up on you – it may be time to consider the benefits of using a personal loan.
As an unsecured loan, you don’t need any collateral to obtain the funds necessary to pay some or all of your back taxes. Additional benefits include the following:
- Fixed term and rate to ensure a fixed monthly payment
- Interest rates starting as low as 6.99% up to 24.99% from Discover Personal Loans (this depends largely on your credit score and history)
- Fast funding, providing you with the money you need to pay your back taxes in a timely manner
As frustrating as it may be to owe back taxes, this problem won’t disappear on its own. If you find yourself in this situation, calculate what you owe using the five steps listed above as a guideline, determine how to best pay back the money, and then take action to avoid any additional complications.