Failing to pay your taxes is not the worst mistake you can make, but it ranks pretty high on the list of things that will come back to haunt you. The Internal Revenue Service has a long memory when it comes to unpaid taxes. The one thing you should realize is, this problem won't go away on its own. If you haven't paid your taxes for several years, you need to address the issue immediately.
File Your Tax Returns
File a tax return for every year that you have missed, regardless of whether you owed taxes for that year or not. If you failed to file a return, you cannot claim any tax credits or refunds that you may be owed. You should file all returns even if you are unable to pay your taxes in full. Filing your tax returns, even late, may qualify you to participate in an installment payment plan or other repayment options.
Explore Your Payment Options
Ask your IRS representative what payment options are available. Paying your taxes in full will be the least expensive method, but if you can't pay the full amount, the IRS may offer to set up an installment plan that will allow you to pay off your tax debt over time. If your tax debt, including penalties and interest, is less than $50,000 you can apply for an installment plan online through the IRS website. The IRS may offer to delay collection proceedings until you are better able to handle tax payments, but this will not stop interest and penalties from accumulating. In some cases the IRS may consider an offer in compromise, which will allow you to pay a lesser amount than your total tax debt.
Make Your Payments
Make all of your tax payments as agreed. As long as you are abiding by the terms of your installment agreement the IRS will not pursue enforced collection activities, which could include placing a notice of levy against your wages or bank account, or seizing your property and selling it to satisfy your tax debt. Interest and penalties will continue to accrue until your tax debt is paid in full, so it is to your advantage to pay off your tax debt as soon as possible.
You should file your tax returns in a timely manner, even if you don't have the money to pay your taxes. The penalty for failure to file is more severe than the penalty for paying late. The IRS typically does not pursue criminal prosecution if you neglect to file your tax returns, provided you make an honest attempt to file your returns once it is called to your attention. Avoiding paying more taxes than you are legally liable for is every citizen's right. Willfully evading paying taxes that you are legally liable for is a felony offense that is punishable by up to five years in prison and a fine of up to $250,000.
- Internal Revenue Service: Eight Facts on Penalties
- Internal Revenue Service: Frequently Asked Questions For Past Due Return Filers
- Internal Revenue Service: Offer in Compromise
- Internal Revenue Service: Other Ways to Resolve Tax Debt That Could Save You Money
- Internal Revenue Service: Temporarily Delay the Collection Process
- Internal Revenue Service: Payment Plans, Installment Agreements
- Internal Revenue Service: Related Statutes and Penalties -- General Fraud
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.