Top 5 Mistakes People Make With Back Taxes

Owing back taxes is stressful, but making the wrong moves can make your situation much worse. Here are the top five mistakes people make with back taxes—and how to avoid them.

1. Ignoring IRS Notices

Many people hope their tax problem will go away if they ignore it. Unfortunately, the IRS won't forget. Ignoring notices leads to escalating penalties, interest, and eventually aggressive collection actions like wage garnishments or bank levies.

What to do instead: Open every IRS letter promptly and respond by the deadline. If you're unsure what a notice means, seek professional help right away.

2. Failing to File Tax Returns

Some taxpayers skip filing because they can't pay what they owe. This is a big mistake. The penalty for failing to file is much higher than the penalty for failing to pay. Plus, the IRS may file a "substitute return" for you, which rarely works in your favor.

What to do instead: Always file your tax returns, even if you can't pay the full amount. Filing keeps penalties lower and preserves your rights to dispute or negotiate the debt.

3. Making Unrealistic Payment Promises

Desperate to stop collection actions, some people agree to payment plans they can't afford. Missing payments can default your agreement and put you back at square one—sometimes in a worse position.

What to do instead: Be honest about your finances. Only agree to payment terms you can realistically meet. The IRS offers several options, including partial payment plans and offers in compromise.

4. Overlooking Penalty Relief

Many taxpayers don't realize the IRS offers penalty abatement for reasonable cause—such as illness, natural disaster, or first-time mistakes. Failing to request relief means you could pay much more than necessary.

What to do instead: Ask about penalty abatement. Provide documentation for your circumstances and request relief when you qualify.

5. Going It Alone

Tax laws and IRS procedures are complex. Trying to resolve back taxes without expert help can lead to missed opportunities and costly errors.

What to do instead: Consult a qualified tax professional. They can help you understand your options, negotiate with the IRS, and avoid common pitfalls.

Final Thoughts

Back taxes don't have to ruin your finances or peace of mind. By avoiding these mistakes and taking proactive steps, you can resolve your tax issues and move forward with confidence.