Filing a Late Tax Return Doesn’t Necessarily Mean You Owe Back Taxes
The tax world is full of technical jargon that might not mean very much to the layman. But one distinction you really should pay attention to is the difference between back taxes and late taxes, especially if you’ve neglected your taxes in years past.
The phrase “back taxes” gets thrown around a lot in reference to all sorts of different tax issues from previous years. It often gets mixed up with the term “late taxes” and, in certain quarters, the two are used interchangeably.
But in reality late taxes do not necessarily result in back taxes – all back taxes are late taxes, but not all late taxes are back taxes.
So what exactly are back taxes and how are they different from late taxes?
Let’s start with late taxes. “Late taxes” is an umbrella term denoting taxes filed or paid after the deadline. Having late taxes could mean that you didn’t file taxes from prior years and owe the IRS money, that you didn’t file and the IRS actually owes you a refund, or that you didn’t get your return in by the normal April deadline and requested a six month extension.
All of these examples are scenarios said to be dealing with late taxes, but only the first actually has anything to do with back taxes.
Back taxes are taxes that weren’t paid when they were due. Failing to pay taxes by the deadline, underpaying taxes, failing to report taxable income, and failing to file entirely could all result in back taxes – so long as you end up owing the IRS money.
Lots of people assume that just because their taxes are late, they owe the IRS money. The fact is, you could very well get tax back. The IRS gives refunds out for late tax returns from the last three years. Actually, late filers are more likely to get a refund than the general tax filing population.
But if you do owe back taxes, the problem can quickly become a serious one. Whenever you don’t pay your taxes by the deadline, the IRS imposes penalties and interest that have to be paid off along with your original tax debt. Every day your back tax debt grows even bigger.
So how do you resolve your back tax problems?
The best way out of back tax trouble is to file your return and pay your tax debt. Simple as that. Avoiding the IRS is only delaying the inevitable, not to mention accumulating penalties and interest along the way.
Resolving back taxes involves paying your tax liability, either all at once or in a monthly payment plan worked out with the IRS.
If you don’t pay, the IRS could launch an investigation, assess you for the unpaid taxes, garnish your wages, and even seize your assets to cover your back taxes. Not a pretty picture.
If you haven’t filed a return from a previous year, file as soon as possible with a service like PriorTax. You could be pleasantly surprised and receive a refund! If not, either pay your tax debt or give the IRS a call to work out an installment plan. It might be painful, but it will save you money in the long run.
Photo via 401(K) 2012 on Flickr.
Tags: back taxes