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IRS Back Tax Advice
Back taxes are unpaid taxes from a prior year. They incur interest and penalties until paid in full if they are more than a year late. If the IRS learns that you owe back taxes, you may be unsure what to do. This article provides some helpful insights for dealing with tax debt.
The IRS wields considerable power and influence when it comes to collecting back taxes and enforcing tax laws. Taxpayers, on the other hand, have rights and must understand how to deal with the IRS if they owe back taxes. Sometimes, your rights are not entirely clear, and you might seek professional help to get your debt under control.
The furthest thing we’d recommend is ignoring the problem. If you disregard IRS mailings or phone calls regarding past-due taxes, you may suffer bank levies, tax liens, and wage garnishments. Ignoring or delaying an issue is made worse by daily interest and penalties.
Payments to the IRS should never be missed. If you miss a deadline, the IRS has the authority to cancel your payment plan and reopen the collection action. If you are unable to meet an IRS deadline, contact them as soon as possible to see if you may resolve the situation without paying interest or penalties.
Weigh your options wisely.
Don’t let the IRS scare you into believing you have to pay back taxes right away. IRS officials may appear intimidating, so be prepared and keep your calm. As noted above, you have rights as a taxpayer, so don’t allow the IRS to bother you. Taxpayers who owe back taxes have a few options.
IRS installment plan
When you opt to file for an installment plan with the IRS, you can significantly reduce or eliminate penalties and interest. When making use of an installment plan, you enter an agreement with the IRS to pay off personal debt in monthly installments over the course of a few years. (usually 1-6)
Make an OIC (Offer in Compromise) request to the IRS for a tax settlement in order to pay less than what is owed. You might qualify for an OIC, but there are strict qualifications. There are qualified professionals that are willing to assist you in seeing whether your situation qualifies for getting a share of your debt waived.
If you are in financial difficulty and cannot pay, you may be termed “not collectible” since the IRS is legally not allowed to cause financial hardship to a taxpayer. In addition, you could pay your taxes using a credit line. While not recommended, this may be less expensive than IRS penalties and interest. A credit agency is less difficult to deal with than the IRS.
Are your tax returns missing?
Let’s say you can’t make a payment arrangement or settle back taxes until you file all of your tax returns with the IRS. Whether you can pay or not, submit a tax return. The IRS’s highest penalty is for failure to file a tax return. Filing your late taxes can save you a lot of money in the long run, as opposed to not filing them and accruing higher penalties and interest.
Fill out your most recent tax return on time. The IRS will not work out a payment plan with someone who hasn’t filed. Furthermore, this will catch up with you, causing you to owe more money and suffer further interest and penalties.
Make a payment plan with the IRS.
To elaborate, IRS installment payments can be set up by taxpayers themselves. The type of arrangement you may obtain is determined by how much you owe and when you can pay it. If you can pay off your debt in 120 days, you shouldn’t seek an installment payment.
For online payment arrangements, the application price is $149 or $31 if paid electronically. Low-income earners pay $43. Fill out Form 13844 to get a low-income application fee waiver.
When you set up an installment plan, the penalty on your outstanding debt is reduced to 0.25% each month until it is paid in full. The federal short-term rate plus 3% is charged (interest may change each quarter). If you do not pay on time, the IRS has the authority to cancel contracts.
Bargaining with the IRS is feasible.
You may be able to settle your outstanding taxes with the IRS for less than you owe if you are unable to pay your tax bill or if doing so would create financial hardship, according to the IRS. As mentioned earlier, if you’re in significant economic hardship, you might qualify.
It is far more difficult to persuade the IRS to accept a compromise than a payment plan. Less than half of applications are approved by the IRS. To determine whether you qualify for an offer in compromise, the IRS considers your capacity to pay, income, costs, and assets. It would help if you did thorough research before making a decision or contact one of the certified tax specialists at Idealtax.com.
