past due tax returns

Struggling With Past Due Tax Returns? Here’s Your Action Plan

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We’re rapidly approaching October 15th, which means that anyone who filed for a 2023 tax extension will soon owe payments.

What if you’re not ready to make them? What if you never filed an extension in the first place?

In 2021, the US hit a new record with over $688 billion worth of unpaid taxes, as reported by CBS.

You’re far from the first person to deal with past due tax returns and there’s still time to make an action plan.

At Master Accounting, our enrolled agent is here to support you through the steps to resolve back taxes.

Read on to learn more about what the process can look like and why you need professional help.

What to Do If Your Taxes Aren’t Filed

Many of our clients come to us because they need to file late tax returns.

If you have yet to file your tax returns from 2023 or earlier, here are some of the steps you will need to take before paying back taxes.

Gather All Income Documents

Start by gathering all documents pertaining to any income you earned in the year you missed the tax filing date.

This may include:

  • W-2 forms provided by your employer at the time
  • 1099 forms for contract or freelance work completed that year
  • Bank statements for paid work that did not yield a W-2 or 1099
  • Records of earnings from investments or property sales

You should also gather any records of potentially deductible expenses from that year.

Investopedia provides a list of examples of deductible expenses.

Get Professional Help to File Your Late Return

We always recommend working with an enrolled agent when you’re resolving issues with the IRS pertaining to late tax filing.

An enrolled agent can help you gather all the correct documentation and find the right forms.

Tax laws tend to change each year, and so do the forms you’ll need to file your taxes.

Using forms from the wrong year can result in reporting errors.

An enrolled agent can also ensure that you’re using the proper forms that may otherwise be difficult to locate in the IRS database.

Ways to Address Tax Debt

If you filed your tax return on time but haven’t settled the resulting payments with the IRS, you can skip to these steps.

Otherwise, you will need to file late tax returns before you can make a plan to pay past due tax returns.

Let’s take a look at some of the ways you can address late tax payments, from installment agreements to Offer in Compromise agreements.

Installment Agreements

One of the most common action plans for paying past due tax returns is creating an installment agreement with the IRS.

With an installment agreement, you’ll pay off your late taxes in set installments over the course of several months, rather than paying the full sum all at once.

Installment agreements are now available to single filers who owe a maximum of $50,000 in back taxes.

This includes the original amount owed as well as any tax penalties and interest you’ve accrued.

Penalty Abatement

Whether or not you pursue an installment agreement, you may qualify for penalty abatement.

This can reduce or eliminate penalties related to late filing or late payment.

Generally speaking, you will only qualify for penalty abatement if your tax record is otherwise clean.

Getting the IRS to grant a penalty abatement can take persistence, which is another area in which an enrolled agent can help.

Offer in Compromise

An Offer in Compromise (OiC) is an IRS program for managing overdue taxes that reduces the amount owed.

While this may sound like the most desirable plan, there are a few things you need to know before you apply.

Ultimately, very few people are eligible and applying requires you to pay non-refundable fees.

Additionally, if you are granted an OiC, it remains on your public record.

Ultimately, you should always work with an enrolled agent to decide if this is the correct route and boost your chances of securing an OiC if that is the route you choose.

Currently Not Collectible Status

What if you aren’t eligible for tax payment relief and can’t afford monthly payments right now? If paying your overdue taxes would create significant financial strain, you may be eligible for Currently Not Collectible status.

As the name suggests, this approach involves extending the due date upon which the IRS will collect your taxes.

Once again, eligibility is limited and you can continue to accrue penalties before your extended due date arrives.

Deciding What Approach to Take

You know the potential steps to resolve back taxes.

Which one is the right plan for you? Here are the steps you’ll take with your enrolled agent to create your plan of action.

Assess Your Finances

First, you’ll need to take a closer look at your financial situation. Your enrolled agent will ask questions like:

  • How much do you owe in unpaid taxes?
  • What is your current debt-income ratio?
  • How would paying your back taxes in installments impact your financial stability?
  • Do you believe your financial situation will improve in the future and if so, why?

The goal is to pick a strategy that suits your financial needs and minimizes potential downsides (like increasing your penalties or impacting your public financial records).

Determine Eligibility

Next, your enrolled agent will help you determine which strategies you’re eligible for.

Some strategies, like penalty abatement, are fairly straightforward.

If this isn’t your first time paying late taxes, you likely won’t be eligible.

Others are more complicated.

There are several factors the IRS will consider before granting an OiC or Currently Not Collectible status.

Working with a tax expert is the best way to avoid pursuing a strategy the IRS ultimately will not approve.

Do You Have Past Due Tax Returns? We Can Help

If you’re facing past due tax returns, know that there is a path forward.

Creating a detailed action plan can protect your legal and financial interests, and Master Accounting can help.

At Master Accounting, we have an enrolled agent on staff with the up-to-date tax knowledge you need to handle everything from tax preparation to resolving IRS issues.

We’re here to build a relationship that lasts through tax seasons to come.

Contact us and let us know what’s going on with your past due tax returns and we’ll get started right away.

Looking for Back Tax Service Near Me?
Get expert help from Master Accounting and Tax Service! We specialize in resolving back taxes, providing reliable tax accounting and bookkeeping services tailored to your needs.
Call (480) 456-4999 or Contact Us Today for personalized assistance!