File Back Taxes

A tax system is a very complex one, requiring an individual to file returns, pay taxes, and wait for refunds and countless many things. Many people just ignore the first step itself that is they do not file a return at all. However, it is very important to file a return to the best of your knowledge. Not filing a return can lead to heavy damages and penalties, including the late payment interests and sometime even tax liens or tax levies. The easiest way out, if you have not filed a return is to file a back tax return.
A taxpayer must fill his return clearly stating his income and all the necessary details including the net tax to be paid. Even if the taxpayer is unable to pay the tax or is not able to pay it in full, it is always good to file a return as it will help you to avoid a non-filing penalty. A non-filing penalty can be as high as 5% per month from the due date, subject to a maximum of 25%. Add to that an additional penalty of 0.5% per month if you owe any tax and an 8% interest on the tax owed. Thus, you can see that not filing a return can really drill a hole in your pocket.
The first step to file a back tax is to get all the documents necessary to file the back tax. The documents would be the proof of your income and if you could not file the return on time due to social or economic problems, the documents may serve as the proof. Thus, completion of documents is the first step.
Many people do not file a return because they do not have the proper documents. Also they think that they do not owe any tax if they do not file a tax return. One must be aware that he owes the tax even if he does not file a return. The IRS maintains a database of all the social security numbers along with the returns filed (or not filed) and the tax owed. Also, all the lost documents can be taken care of once the database for the year has been compiled. The necessary wage certificates or mortgage documents or tax credit certificates can be compared to the documents submitted by the peers or the employers. These copies can be requested from the IRS.
After the completion of the documents, you can look for professional help to fill your returns as they may include data of several years. Also, you can use taxation software to file back tax returns. The tax software takes care of the details, rates and deductions specific to a particular year. Also, they can be used to calculate interest and penalties on the back tax once you file it.
The next step would obviously be filing the return. However, tax payment may not be necessarily completed at this time. There would be an IRS review of your situation and they would like to discuss the penalties, interest rates and payment options. If you are unable to pay the tax in full, you may discuss an appropriate installment plan with their agent advisor and work out a process towards the tax payment. You may also want to discuss end of tax liens or a tax levy, if there exists one. The IRS agent may also work out a mutual settlement instead of the tax installments, if he agrees that the settlement would truly reflect the original tax payment that you needed to make.
Although tax installments are available, but it is always good to pay-off the tax in one go. If you are unable to pay the tax, you may take a personal loan from various agencies as the interest would be much less than those in the installment plan. Also, there would not be any risk of non-payment penalties. It should also be noted that the tax credits that a taxpayer earns are to be claimed within 3 years of earning those credits. The claim is valid only on the full payment of the remaining tax. Thus, file a back tax return as soon as you can.
Despite all the facilities and agreements that IRS provides to help you file your back tax, there are always people who feel to be cheated in some sort. Legal and professional help is always available. You have to file an appeal against the penalties or interests within 30 days of the IRS review. You may be better off by hiring a professional on the first place itself. The professional can file your back tax and at the same time help you in filing suits against penalties, interests and levies. You must however remember, file your tax return and reap all the benefits.