The issue of filing tax returns is a complicated process as it is. It's now even worse when you're behind on your tax payments. Well, let's look at how you can take care of your back taxes.
What are Back Taxes?
Back taxes are taxes owed from previous years. As is the case with most debts, the pressure and penalties mount the longer it gets. If you're falling behind on your tax payments and you're wondering what to do, then read on to find out how to solve that problem.
How to Deal With Back Taxes
Listed below are ways you could try to get rid of or manage your back taxes. In no particular order, they are;
Scheduled payments by the IRS
The IRS could provide an extension on your tax due date most times in the form of a payment schedule, which would be tailored to a specific duration of time in which you have agreed to pay your owed taxes. These payment schedules come in two types: the long and the short-term.
A few points to note about these schedules is that;
Although the time for your payment was extended, you will still be penalized for late payment, and that penalty fee will be factored into the total amount you pay.
Any overdue tax above $25,000 would have to be paid through automatic bank deductions.
Any of such payments you make with either your credit or debit cards would attract a transactional fee, which, for credit cards, is 2% of the total amount to be paid, while for debit cards, charges range from between $2 and $4.
Compromised payments
When a taxpayer defaults on their payments of taxes and lets it run late, when they do get around to [paying those taxes, they can apply to the IRS to pay a lesser amount than they owe. This option is open only to those in financial straits and does not have the funds to settle their tax debts, or, if they were to pay the total amount, they would be in an unfavorable financial situation afterward.
It is, however, essential to note that the IRS grants less than 50% of these requests, and they would be more likely to attend to a request for payment schedules than grant one for an "offer of compromise"- which is the IRS term used for compromised payments. Some factors that play a role in determining whether the IRS grants your request for an offer of compromise are your assets, your inflow of cash or income, your expenses, and your payment power.
Put your account on "hold."
If paying your taxes seems very difficult now, and you are even finding it difficult to foot your bills daily, then you can apply to the IRS to put your account on “hold.” What this means is that you’re telling the IRS to push forward the date for the payment of your taxes, pending when things will become financially okay with you again.
This is called the “Currently Not Available” status. For the IRS to grant this request, they will need you to fill a Collection Information Statement, certifying that your financial status is as you said it is.
Some key points about these forms include:
It is a temporary fix. It's not like your due taxes will be erased or something. It is only shifted forward, to be paid at a later date.
Also, there will be routine checks by the IRS to see if you're doing better financially and can pay your taxes.
Enlisting the services of a professional
Some companies specialize in tax relief situations. You can enlist their help to solve the issue of your delayed tax payments. Their support varies depending on the case, but mainly, they can ease your confusion and show you the proper way to file for your back taxes and which approach to take. Still, keep in mind that if you're opting for compromised payments, your chances of being granted that request are pretty low. However, make sure that the company entrusting the solution of your back taxes does not flay in carrying out the process. Otherwise, you will incur additional penalties from the IRS.
FOR MORE INFORMATION ON HOW JIM McCLAFLIN, EA, NTPI FELLOW, CTRC CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.
THANKS FOR VISITING.
Jim McClaflin, EA, NTPI Fellow, CTRC