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.
If you have not filed taxes since 2004 and this year you caught then up and you found you had a refund coming for the year 2007 will the irs apply the refund you had coming to late taxes you owe so you end up paying the balance due. Knowing they will not send it to you because of the 3 year statue.
I haven’t filed either 2010 or 2011 returns and never filed an extension. I should receive very small returns on both of these years. Does the IRS take a penalty amount out of the return that I should receive?
Hi Sarah,
If you are due a refund, you won’t owe the IRS any late penalties or interest. They only apply to people who have a tax liability.
I haven’t paid taxes for about 8 years. Not sure I even filed the past two. During those years I was at many points barely getting by and often sleeping in my car. I am starting to get on my feet and save a small amount of money. I want to start dealing with my taxes, but have no clue what to do. I have gotten all sorts of notices and even a bank lien at one point. I work odd jobs and have no real assets. Not much I can lose, but feel so hopeless about ever being able to break even. It is overwhelming and scary. I do owe a significant amount of money according to their records. What is a good approach? Do I seek professional help? How do I pay them? Any advice would be greatly appreciated.
Hi Damian,
It sounds like your situation is pretty serious. If that’s the case I would really look into getting a tax professional to deal with it. That being said, it wouldn’t hurt to have a little more information, so you know exactly what you’re dealing with. Instead of speculating, why don’t you try preparing your taxes on a site like PriorTax but then not filing them. This way you could at least get solid numbers on what you owe or on what you might get back. It might turn out not to be as bad as you assume. And if you do owe a lot of money, the IRS is usually pretty flexible in working out an installment plan that’s manageable for you.