What do i do if i owe back taxes

what do i do if i owe back taxes

What to Do if You Owe Back Taxes

Over the last few years, the IRS has instituted a more lenient attitude and additional programs to help people pay their back taxes and their current taxes. But when I say “lenient,” I mean less draconian. They still want you to pay all your taxes (and penalties), but they are more amenable to offering programs that will help you be able to do so.

Like so many problems in life, it’s best if you just bite the bullet and deal with your tax issues up front. Don’t put your head in the sand, don’t pretend it doesn’t exist, don’t put off thinking about it, and don’t think the IRS will forget about you.

But know that you are not alone (which may be one reason the IRS is working with taxpayers): Americans who are behind on their taxes are estimated to be anywhere from 8 to 20 million people.

What to do first

First, you will need to file a return, even if you haven’t for a while. This is the first step. It’s scary to bring yourself to the attention of the IRS, but it’s better for you in the long run. File, even if you can’t pay your taxes yet.

But what if you haven’t filed a tax return in several years?

Call the IRS. You’ll need to give them your current information: name, address, Social Security number, employer, and current salary. Then, you’ll have to commit to a certain date by which you will have filed all your delinquent returns. If you find during the process that you might not make this date, stay in touch with the IRS. Call them and request an extension.

The IRS will provide you with your account summaries: What returns are still outstanding and what have been filed, what you currently owe, and if any refunds were applied to your owed taxes.

Now, work out the tax returns for each year skipped. If you don’t have W-2s or pay stubs for those years, do your best to estimate.

After you’ve caught up with your tax filings, the IRS will let you know what your owed tax amount is, plus any penalties and interest. If you had a significant life event, you may be able to convince the IRS to reduce your penalty amount: If you had a death in the family, mental illness, alcoholism or very serious illness, bad accountant advice, military service. Be prepared to back these up with documentation.

Consult a professional

Are your taxes complicated? Start with an experienced tax accountant. If they can’t help, look for a tax attorney. Interview two or three of the most experienced in your city. You want a firm that specializes in IRS tax controversy and IRS collection resolutions.

Look out for, and beware of, firms that offer you pennies-on-the-dollar, firms that only exist online or at 800 numbers, even if they promise great things. There is no easy fix for your situation, and such firms–who may even have been prosecuted and fined–will just take your money and do nothing.

You know what you owe—now what?

What NOT to do

The IRS would greatly prefer it if you would just take

out a loan, or use your credit cards, to pay your taxes. That’s because they get their money right away. But if you are in a financial position where you are unable to pay taxes, then taking a loan or charging up credit card debt (if you are even able to) are not going to help your financial situation. Also, don’t take money out of your IRA or 401k or other retirement fund.

Instead, use one of the two main programs the IRS has for getting you back on track:

Monthly installment payments

If you think you can pay your owed taxes eventually, this is your best option. It’s the easiest and quickest way to get a plan worked out. Go to the IRS website and fill out the online payment agreement application. You’ll find out right away if you are eligible, what your payments will be, and how long it will take. According to the IRS, if as an individual you owe $50,000 or less (taxes, penalties, interest), and can pay the entire amount within six years, you will be able to get a payment agreement.

Don’t meet the criteria for an online agreement? Check here  for how to proceed—you may well still be able to work out a payment plan.

Don’t surprise the IRS—stick to your payments and stay in communication! If you find you cannot make a payment, be upfront with them. Call the phone number on your notice, and discuss it with them. They may let you skip the current due payment as long as you make the next one. If you simply stop payments, they will take action and could very well seize your property and bank accounts and/or put a lien on your paycheck.

Offer in Compromise

The IRS has expanded and streamlined this program, which allows you to reach a settlement for your debt for less than what you owe. Before you get excited about this option, know that the IRS takes this very seriously. They will require a full accounting of your financials, and they must be convinced that you won’t be able—at all—to pay your tax debt without severe financial hardship.  Read more about this program here. If you think this might be an option for you, use the Offer in Compromise Pre-Qualifier to verify your eligibility.

Generally speaking, to use either of these plans, you must be up-to-date in your tax filings (remember what we said to do first!).

Realize that the IRS could fine you up to $25,000 for each tax year you owe returns for, or put you in jail for a year. Much more likely though, if you come forward voluntarily and are honest about your situation, they will work with you. The IRS is more interested in getting your tax payments than in punishing you.

The task does seem daunting, especially if you have to sort out several years worth of financial information and tax returns. But take it one step at a time, seek advice if necessary, and you will get through it!

Posted on January 21, 2015.

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Source: www.paydayhawaii.com

Category: Taxes

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