Paying taxes is a way of life. You’re legally required to pay them so you can stay in good standing with federal, state and local governments.
“Back taxes” sound scary, but it is simply a term that describes taxes that were not paid when they were initially due, what tax agencies call “past due” taxes.
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 by filing and paying
- 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 for paying back taxes
Having to pay back taxes may cause a wave of emotions and frustration, but it is required by law. And, dealing with the problem can bring a sense of relief. 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 W-2 or 1099 information, by contacting the issuer of those forms or using Form 4506-T, Request for Transcript of Tax Return to obtain information that was provided to the IRS by the issuer.
- Download tax returns/forms for the appropriate year (you must use the returns/forms for the tax year you’re filing).
- Prepare your tax returns (relying on the assistance 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. Paying tax amounts due can limit additional penalties and interest.
What if I can’t afford to pay back taxes?
Many people avoid filing past due 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 a payment extension from the IRS (for up to 120 days), set up 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 can a personal loan help?
Once you know how much you owe, you can formulate a plan for paying your back taxes in order 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.
Because a personal loan is a type of 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 set regular monthly payment
- Interest rates starting at 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 quickly
As frustrating as it may be to owe back taxes, this problem won’t disappear on its own. It’s best to take action as soon as possible to avoid additional complications. Beware of tax scams from people claiming to collect your back taxes. According to the Federal Trade Commission, the IRS will initiate contact by mail about unpaid taxes.
If you find yourself having to pay back taxes, 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. You’ll feel better when you do. Read More about Discover Personal Loans