Falling behind on taxes can be stressful, especially when dealing with the IRS. Denver residents who owe back taxes may face penalties, interest, and even legal action if their debts go unpaid.
Fortunately, there are several options available to resolve tax debt and regain financial stability. This guide will walk you through what you need to know about Denver IRS back taxes, relief options, and when to seek professional help.
Understanding Denver IRS Back Taxes
Back taxes refer to any unpaid federal or state taxes from a previous tax year. These unpaid debts can accumulate due to various reasons, including unintentional mistakes, financial hardship, or failure to file a return by the proper tax back date.
If left unresolved, back taxes can lead to significant financial consequences, including penalties, interest, and aggressive collection actions from the IRS or the Colorado Department of Revenue (CDOR).
Common Causes of Back Taxes
Several factors can contribute to owing back taxes, such as:
- Underreporting Income: If you fail to report all sources of income, such as freelance earnings, side jobs, or investment gains, the IRS may identify the discrepancy and assess additional taxes.
- Failure to File a Tax Return: If you don’t file a required tax return, the IRS may file a Substitute for Return (SFR) on your behalf, which often results in a higher tax liability because deductions and credits may not be applied. Filing back tax returns as soon as possible can help reduce penalties and restore compliance.
- Inability to Pay in Full: Some taxpayers file their returns but are unable to pay the full amount owed. Even if you file on time, unpaid balances still accrue interest and penalties.
- Incorrect Tax Deductions or Credits: Claiming improper deductions or credits may lead to tax audits and adjustments that increase your tax liability.
- Payroll Tax Issues: If you own a business and fail to properly withhold or pay payroll taxes, the IRS can impose severe penalties, including trust fund recovery penalties.
- IRS or CDOR Adjustments: The IRS and CDOR may review and adjust tax returns due to errors or missing information, which can result in additional taxes owed.
Penalties and Interest on Back Taxes
Both the IRS and the Colorado Department of Revenue impose penalties and interest on overdue taxes, making it crucial to resolve back taxes quickly. These additional costs can significantly increase the total amount owed over time:
- Failure to File Penalty: Typically, 5% of the unpaid tax per month, up to a maximum of 25% of the total balance.
- Failure to Pay Penalty: Generally 0.5% per month on unpaid taxes, increasing to 1% per month after the IRS issues a final notice.
- Interest Charges: Interest accrues daily on unpaid taxes and penalties, based on the federal short-term rate plus 3%. Colorado also imposes statutory interest on unpaid state taxes.
- State Penalties: The Colorado Department of Revenue imposes similar penalties, including late payment and late filing penalties, which add to the overall tax burden.
Consequences of Unresolved Back Taxes
If back taxes remain unpaid, the IRS and CDOR have various enforcement tools to collect the debt. These may include:
- Wage Garnishments: The IRS can order an employer to withhold a portion of your paycheck to satisfy the debt.
- Tax Liens: A tax lien is a legal claim against your assets, which can negatively affect your credit score and prevent you from selling or refinancing property.
- Bank Levies: The IRS has the authority to freeze and seize funds from your bank account to cover unpaid taxes.
- Seizure of Assets: In severe cases, the IRS can seize physical assets, such as real estate or vehicles, to satisfy outstanding tax debt.
- Loss of Passport: If your tax debt exceeds $62,000 (as of 2024, adjusted annually for inflation), the IRS can request the State Department to revoke or deny your passport.
Understanding how back taxes accumulate and the consequences of non-payment can help you take proactive steps to resolve your tax debt before it escalates into a serious financial issue.
How to Check if You Owe Denver IRS Back Taxes
If you suspect that you owe back taxes, it’s important to confirm your tax status as soon as possible. Ignoring potential tax debt can lead to penalties, interest, and collection actions.
Follow these steps to determine if you have unpaid federal or state taxes:
Check IRS Records
The IRS provides several ways for taxpayers to access their account information and determine if they have outstanding tax debt:
- Online Account Access: Log into your IRS account at gov to view tax balances, payment history, and notices.
- Tax Transcript Request: You can request a tax transcript online, by mail, or by calling the IRS. A transcript provides a summary of your tax return, including reported income, tax liabilities, and any payments made.
- IRS Notices: If you owe back taxes, the IRS typically sends notices by mail. Review any correspondence from the IRS carefully, as it will outline the amount owed, penalties, and deadlines.
Contact the Colorado Department of Revenue
For state tax debt, you will need to check with the Colorado Department of Revenue:
- Online Access: Visit the CDOR website and log into their Revenue Online portal to check your state tax balance.
- Call CDOR: You can also contact their offices directly to inquire about outstanding tax liabilities or request an account statement.
- Review State Tax Notices: If you owe state back taxes, CDOR may send letters regarding unpaid balances, penalties, or collection actions.
Review Past Tax Returns
Examining your previous tax filings can help you identify discrepancies or unpaid balances:
- Compare Reported Income: Ensure that all sources of income were reported accurately. Missing or underreported income can lead to tax debt.
- Check for Filing Errors: Mistakes such as incorrect deductions or credits could result in an unexpected balance due.
- Confirm Payments: If you made estimated tax payments or applied credits from a prior year, verify that they were properly applied to your account.
- Ensure All Returns Were Filed: If you missed filing a return for a prior year, you may owe taxes plus penalties for failure to file.
Request Assistance if Needed
If you’re unsure about your tax situation or need help understanding IRS or CDOR records, consider:
- Consulting a Tax Professional: A CPA or tax advisor can review your records and help you determine if you have unpaid taxes.
- Calling the IRS or CDOR: If you have trouble accessing your records online, you can contact the IRS or CDOR for assistance.
By taking these steps, you can confirm whether you owe back taxes and take action to resolve your tax debt before penalties and collection actions escalate.
Denver Back Tax Relief Options
If you owe back taxes, there are several relief options available to help you manage or reduce your debt. The right solution depends on your financial situation, the amount owed, and your ability to pay.
The IRS and the Colorado Department of Revenue provide programs to assist taxpayers in settling their debt while avoiding aggressive collection actions.
Payment Plans (Installment Agreements)
If you are unable to pay your tax debt in full, setting up an installment agreement allows you to make smaller, manageable monthly payments over time. Both the IRS and CDOR offer different types of payment plans:
- Short-Term Payment Plan: Available for those who can pay their full tax debt within 180 days. No setup fee is required, but interest and penalties continue to accrue.
- Long-Term Payment Plan: If you need more time, you can apply for a structured installment agreement that allows you to pay off your debt over several years. A setup fee may apply unless you qualify for a low-income waiver.
- State Payment Plan: The Colorado Department of Revenue also offers installment agreements for state tax debt, which can be requested online or by contacting the department directly.
- Direct Debit Option: Choosing automatic withdrawals can help you avoid missed payments and additional penalties.
Offer in Compromise (OIC)
An Offer in Compromise (OIC) is a program that allows qualifying taxpayers to settle their tax debt for less than the full amount owed. This option is best suited for individuals who are experiencing significant financial hardship and cannot reasonably pay their full tax liability.
To qualify, the IRS considers:
- Ability to Pay: Based on income, assets, and expenses.
- Income Level: A significant drop in income may increase eligibility.
- Expenses vs. Debt: If your necessary living expenses exceed your income, the IRS may accept a reduced settlement.
- Asset Equity: The IRS evaluates the value of your property, savings, and other financial assets.
Applying for an OIC requires submitting Form 656 along with a detailed financial disclosure (Form 433-A or 433-B for businesses). The application process can be complex, and working with a tax professional may improve your chances of approval.
Currently Not Collectible Status (CNC)
If you are experiencing extreme financial hardship and cannot afford to pay your tax debt at all, you may qualify for Currently Not Collectible (CNC) status. When granted, the IRS temporarily halts collection efforts, meaning they will not garnish wages, seize bank accounts, or levy property.
However, interest and penalties will still accrue on your balance. To qualify, you must provide financial documents proving that paying your tax debt would cause undue hardship, leaving you unable to cover basic living expenses such as rent, food, and medical bills.
The IRS may periodically review your financial situation to determine if you remain eligible.
Penalty Abatement
If penalties have significantly increased your total tax debt, you may be able to request a penalty abatement, which removes or reduces penalties. The IRS may grant penalty relief under the following circumstances:
- First-Time Penalty Abatement: If you have a history of filing and paying taxes on time, you may qualify for penalty relief for a single tax year.
- Reasonable Cause: If you can demonstrate that your failure to file or pay taxes was due to circumstances beyond your control, such as serious illness, natural disaster, or unexpected financial hardship, the IRS may reduce or remove penalties.
- Statutory Exception: In rare cases, if an IRS error led to penalties being assessed, you may qualify for penalty abatement.
To request penalty relief, you can file Form 843 or contact the IRS directly. The Colorado Department of Revenue also allows taxpayers to request penalty waivers for state tax debt under similar conditions.
Why Choose Instant Tax Solutions For Denver IRS Back Taxes Help?
Navigating back tax relief options can be complicated, and choosing the right solution depends on your financial circumstances. A Denver tax attorney or enrolled agent can help:
- Negotiate with the IRS and CDOR on your behalf.
- Determine eligibility for relief programs and ensure proper documentation is submitted.
- Prevent wage garnishments, tax liens, and levies while working on a resolution.
If you are struggling with back taxes, taking action early can prevent further financial strain and help you regain financial stability.
When to Hire a Denver Back Tax Lawyer
If your tax debt is significant or you’re facing aggressive collection actions, hiring a Denver back tax lawyer can help. A tax attorney from Instant Tax Solutions can:
- Negotiate with the IRS on your behalf
- Prevent or lift wage garnishments and tax liens
- Assist with tax audits and appeals
- Help you qualify for tax relief programs
When choosing a Denver back tax attorney, look for experience, client reviews, and a proven track record of handling IRS disputes.
Preventing Future Denver IRS Back Taxes
To avoid falling behind on taxes again, consider the following steps:
- File and pay on time: Even if you can’t pay in full, filing your tax return on time can help you avoid penalties.
- Keep accurate records: Maintain organized financial documents to ensure correct tax reporting.
- Set up estimated tax payments: If you’re self-employed, making quarterly tax payments can help you avoid a large tax bill at year’s end.
Work With Instant Tax Solutions Today
Owing back taxes can feel overwhelming, but there are solutions available. Whether you set up a payment plan, apply for tax relief, or hire a Denver back tax lawyer, taking action now can prevent further financial strain.
If you’re struggling with back taxes, call (888) 946-2999 to explore your options and seek professional guidance from Instant Tax Solutions.
