Back Taxes: Understanding What You Owe and How to Resolve It
Back taxes are simply taxes owed from prior years that have not been paid. They compound quickly with penalties and interest, but there are multiple structured paths to resolve them — the worst thing you can do is nothing.
What Are Back Taxes?
Back taxes refer to any unpaid tax liability from a prior tax year. They can arise from an underpayment when you filed, an IRS audit assessment, an amended return increasing your tax, or a Substitute for Return filed by the IRS. Once a balance is on your IRS account, it begins accruing interest and penalties immediately.
How Back Taxes Grow Over Time
The combination of the failure-to-pay penalty (0.5%/month), daily compounding interest (approximately 8% annually at current rates), and any accuracy-related penalties can grow a modest balance significantly. A $15,000 back tax balance can grow to $22,000–$25,000 over three years if ignored.
Resolution Options for Back Taxes
Options include: paying in full, installment agreement, Offer in Compromise, Currently Not Collectible status, penalty abatement, and waiting for the 10-year collection statute to expire. The right option depends on the balance amount, your income, your assets, and your long-term financial situation.
Strategies for Multiple Years of Back Taxes
When you owe taxes across multiple years, the IRS wants all years filed before agreeing to any formal resolution. The balances are often grouped into a single installment agreement. Strategic ordering of payments (some years may have penalties abatable through FTA) can reduce total liability before a formal plan is established.
Back Taxes and Self-Employment
Self-employed taxpayers and small business owners account for a disproportionate share of back tax cases because quarterly estimated payments are easy to underpay or skip during difficult periods. Catching up requires not only paying the old balance but also addressing the current year's estimated tax requirements to avoid growing the debt further.
Real-World Example
A rideshare driver in Los Angeles owed $28,000 across 2019, 2020, and 2021 — all years with no withholding and minimal estimated payments. He had received several IRS notices but ignored them. By the time he came to us, a federal tax lien had been filed. We filed his returns (he had not filed 2021), applied FTA for one year, and set up a 72-month installment agreement for $390/month.
Back Tax Help in Los Angeles and Burbank
Calculus Tax, Inc. resolves back tax issues for individuals and businesses throughout Los Angeles, Burbank, Glendale, and all of LA County. Call (310) 598-3759 or visit 1050 W. Alameda Ave., Burbank, CA 91506.
Frequently Asked Questions
How far back can the IRS collect taxes?
The IRS has 10 years from the date of assessment (Collection Statute Expiration Date, CSED) to collect a tax debt. After this period, the debt legally expires and cannot be collected.
Can back taxes be discharged in bankruptcy?
Some income tax debts can be discharged in Chapter 7 bankruptcy if they meet specific age requirements: the return was due at least 3 years ago, was filed at least 2 years ago, and was assessed at least 240 days ago. Payroll taxes and fraudulent returns are not dischargeable.
Will owing back taxes affect my passport?
Yes. Under the Fixing America's Surface Transportation (FAST) Act, the IRS certifies taxpayers who owe over $62,000 (indexed annually) in seriously delinquent tax debt to the State Department, which can revoke or deny passport applications.
Can back taxes be forgiven?
Not through outright forgiveness. However, an Offer in Compromise can settle back taxes for less than the full amount. The CSED expiration also effectively ends the IRS's ability to collect, which has a similar practical effect.
Do I need to pay back taxes before I can get a mortgage?
You do not need to pay in full, but you must be in a formal payment arrangement that is current. Most mortgage lenders will accept a borrower on an established installment agreement with proof of consistent on-time payments.
What happens to back taxes if you die?
Tax debts do not disappear at death. They become a claim against the estate. If the estate does not have sufficient assets to cover the debt, the IRS may be unable to collect the full amount, but the debt is not automatically forgiven.
Back Taxes: Understanding What You Owe and How to Resolve It Services in Los Angeles
Calculus Tax, Inc. provides back taxes: understanding what you owe and how to resolve it services to individuals and businesses throughout Los Angeles County. Our licensed CPAs are based in Burbank and serve clients in Los Angeles and surrounding communities.
Our Burbank office serves clients throughout Los Angeles County including Los Angeles, Long Beach, Santa Monica, Glendale, Burbank, and more.
Ready to Resolve Your Tax Problem?
Calculus Tax, Inc. has helped hundreds of Los Angeles individuals and businesses resolve IRS debt, audits, and collection actions. Our licensed CPAs fight for the best possible outcome.