How to Handle Owing Uncle Sam Back Taxes

Taxes are complex, with ever-changing rules. It’s easy, particularly for those who file manually, to make a deduction or report income incorrectly. Unfortunately, whether or not underreporting income was intentional, not paying or underpaying income taxes will result in action from the IRS. If this happens to you, what are the steps you should take to resolve the situation?

The first, most important thing you can do: determine why you’ve received this notice. Are you being back taxed because you failed to file a 1040 the previous year? If that’s the case, take immediate steps to file as soon as possible. After you’ve filed, then contact the IRS immediately to negotiate a possible solution for your delinquency fees.

What if you owe due to human error on your tax return? Review your archived tax returns and determine if the amount of back tax owed is accurate. You should be able to receive more information about your case by contacting the IRS directly, although they will not be able to provide copies of specific documents. If you choose to hire a tax professional or certified public accountant (CPA), they will be able to retrieve information from the IRS on your behalf.

Once the correct amount of debt is determined, negotiate a plan for repayment. However, keep in mind that before the IRS will negotiate, your must file and pay your taxes for the most current tax year, as well as any other necessary payments. After you’ve made an arrangement with the IRS, it’s very important to you’re your payments in full and on time.

Solutions for back tax repayment vary between individual circumstances and situations. It’s between you and your tax professional to determine what is right for you. The key factor for successfully dealing with this situation is to address it as soon as possible. The faster you respond, and the more honestly you have presented yourself to the IRS, the more likely they are to work with you towards the best solution.

For more information on taxes, smart budgeting and more, explore the Check 'n Go Planning Section.

Christy Belden works in interactive marketing for Leapfrog Interactive. Visit Leapfrog Interactive for more information.