Most of us face a challenge when it comes to bookkeeping and managing tax obligations. Filing your tax returns should not be stressful and confusing for a taxpayer. You probably don’t have a record of all your expenses and income every time you need to file your returns. If you have become a victim of IRS guidelines on filing taxes, you need to act quickly and ensure that you clear your back taxes which will result when you fail to pay overdue taxes from previous years.
If you owe huge amounts of back taxes, you must be thinking of how to get some tax relief. The back taxes may be intentional or unexpected since various taxpayers have different reasons for failing to pay their taxes on time. Most taxpayers keep asking themselves what options they are left with since they still owe IRS tax from prior years. Do not worry about your back tax options, IRS has you covered in such situations. Below are the available options for taxpayers who owe IRS back tax. Want to get more insight on back taxes? Visit the experts at Ideal Tax for more information.
1. Hire a Tax Relief Company
Most people tend to get confused and anxious when it comes to planning, filing, and paying their back taxes. As a taxpayer, you can hire an IRS tax help service to help with handling your back tax. The company tax experts will assist you with the application process and filling out forms. You should however know that tax relief companies may charge you a certain fee for their services which may end up being more costly than what you would have spent if IRS accepts your OIC proposal. The company will also evaluate the amount of money you owe the IRS, create a repayment plan for you and determine whether you qualify for a repayment option.
There have also been cases where a taxpayer is misled by a tax resolution specialist. You need to be very careful when choosing a tax relief expert to work with. The risk of working with any specialist is that they may cause even higher losses than what was already in debt. Furthermore, IRS advises against working with non-licensed and inexperienced tax relief specialists. Some cases become worse and may lead to being investigated.
2. Apply for an Offer in Compromise
Another way of settling your IRS owed back taxes is by applying for an offer in compromise. This payment option enables a taxpayer with offenses to pay less than what they owe the IRS. It is however applicable only to taxpayers who are struggling to pay back their taxes or those who are completely unable to pay back their taxes. The offer in compromise payment plan will give you more time and a favorable offer but in certain situations, the IRS may decide to sign off the tax debt. You should however use this option as the last available option. Below are the requirements for applying for the offer in compromise.
l Pay a non-refundable fee amounting to $205
l Have an updated filed tax returns to qualify.
l Make an initial payment of the back tax which will not be refunded if your proposal is not accepted.
If the IRS accepts the offer in compromise proposal you have placed, you will be required to make payments in installments. You should also know that the information you provide to support your proposal may be shared publicly and the tax debts will not be removed unless you have fulfilled your end of the bargain. If you are applying for this option because of an illness or any other reason, you will be asked to provide pieces of evidence such as a doctor’s statement. On top of that, you need to know that your proposal may be rejected if the offer you are quoting is too low. In such a case, you will be provided with a written explanation of the expected allowed amount quoted by the IRS staff.
3. Select a Suitable IRS Payment Plan
Taxpayers are usually offered more time by the IRS so that they can comfortably pay back their taxes. The period given is in the form of a payment plan which will help you pay the debts. There are both long-term and short-term plans. The short-term payment plan gives you a total of 120 days to pay back at most $100. If you continue making the installments faithfully, the IRS can extend your payment period to 180 days. The long-term payment on the other hand gives a taxpayer 120 days to pay back a maximum of $50000.
The IRS payment plan will not get rid of your interests and penalties accumulated but will ensure the amount reduces until you complete your payments. You will also have to keep filing your future returns or get penalized. You can also choose to apply for a payment plan as a low-income applicant for more leniency.
4. Place a Currently Not Collectible Status
The currently not collectible status is only applicable for taxpayers who for a hardship situation reason or two cannot afford to pay their taxes and do not afford to pay their living expenses. This repayment plan will allow you to delay your tax debts without your assets being retrieved by the IRS collection staff. You will need to prove that your expenses and income cannot support the tax payment. The currently not collectible status is however temporary and will continue to be reviewed by the IRS to check whether your income has improved or not as your debt continues to be placed on hold.
5. Ask for a Short-term Extension for Payment
Some taxpayers are usually capable of paying the full tax debt balance at once. If you are one of them, then this is the best action for you to take. The IRS will give you an additional one hundred and twenty days to ensure that you have paid back the full debt amount. Past the extension time, the IRS will begin to apply a 0.5% per month penalty on the unpaid amount of the tax debt. Those looking to make full tax payments can select this option.
6. Apply for a Personal Loan or Business Loan
Sometimes the best way to get off the tax debt situation is to get the money and pay it back. You may choose to borrow a friend or family some money to use for your tax debt payment before it accumulates more penalties and interests. This is one of the most affordable and less costly options for taxpayers who are facing tax evasion charges. Making monthly loan repayment installments may end up costing you less than repaying the incurred application fees, interests, and penalties from the IRS.
7. Use a Debit Card or Credit Card Payment Option
Various debit and credit card companies offer this option to taxpayers. The debit or credit card will cost you a certain fee on top of the tax debt balance being deposited but you will not have to pay any interest when making the payment. The IRS also provides taxpayers with a list of reputable credit and debit card providers who they can use to make their tax debt payments. This method is advantageous to taxpayers since it is very flexible in use to make payments and convenient for those who want to feel they are in control of their tax payments. You should however avoid this option if you have any credit card debts to avoid having a bad credit score once you are done with the payments.
8. Borrow a 401K Loan and Use it to Repay
Anyone with a 401k plan that allows them to borrow a loan of a certain amount should consider using it to pay their tax debts. This is another cheaper source of cash for your tax debts payment. It is better to have a loan to repay than wait to accumulate more interest and penalties as a result of not paying your back taxes on time.
Bottom Line
Taxpayers will always face a challenge in filing and paying taxes whether it is personal or business tax. It is however advisable to act quickly when you realize you have not filed your taxes in time to avoid huge penalties and interests. You should not panic even if you are not able to pay back your tax debts immediately. IRS understands the struggles of taxpayers and provides them with various tax debt repayment options. Choosing the most suitable repayment option will help you manage and repay your back taxes without much difficulty.
When selecting a repayment option, you should consider your income, expenses, and other factors such as the costs and charges of using the repayment option. Always select options that will reduce the amount you owe the IRS. The best repayment option also takes care of the taxpayer’s needs by ensuring that the amount they repay does not lead to worse situations. You can also get help from Ideal tax. Never let federal taxes affect the quality of life you are living or accumulate to higher amounts that will not be easily paid.
