10 Mar A Guide on How to Handle Back Taxes
When you owe the IRS taxes and don’t pay them on time, you end up facing penalties and interest. Taxes that remain unpaid for at least one year and have accumulated penalties and interest are considered back taxes. Once you owe back taxes, the IRS has the right to enforce tax laws and attempt to collect what you owe.
The IRS won’t start hounding you immediately; it may take a few months for them to pursue you for delinquent tax payments. In the beginning, you will probably get computer-generated letters from the IRS. But at some point, the IRS will become aggressive. They may contact your employer to let them know about your delinquencies and order wage garnishments to settle your liabilities.
However, you don’t have to let things reach the point that your reputation and financial situation becomes damaged. Here’s what to do if you owe the IRS back taxes:
1. Consider setting up an IRS payment plan
The IRS installment agreement you will qualify for will depend on your financial situation. For example, you may be eligible as a low-income applicant. You are eligible to apply online for a long-term IRS payment plan if you owe $50,000 or less, including penalties and interest. You can also apply online for a short-term payment plan if your tax debts, including penalties and interest, are less than $100,000. Long-term payment plans require monthly payments with a payment period of up to 72 months.
2. Request an extension
If you’re late on your tax bill, you can request an extension from the IRS. The IRS can grant a
short-term extension of up to 120 days. While there’s no cost to request an extension, the downside is that you will need to pay the entire tax balance once your time is up. You’ll be able to avoid paying the installment application fee. However, you will still need to pay the total amount plus the late payment penalties and accrued interest. Consider this option if you have the means to pay the entire balance by your extension deadline.
You may also apply for a hardship extension if you are in a situation where you cannot pay your tax debt. If you qualify, you will be under a “currently not collectible” or CNC status. While you won’t be required to make payments until your financial situation improves, the debt will not go away and penalties, and interest will continue to accumulate.
3. Hire a tax negotiation and mediation firm
Not completely understanding how to calculate back taxes or why the IRS says you owe more than you thought can lead to more financial troubles. Hiring a tax professional will not only help you make sense of how much you currently owe and potentially owe if you don’t agree to a payment plan soon, but you may also learn ways to reduce or even avoid interests. The right tax negotiation and mediation firm can offer tax payment assistance and help you determine eligibility for the right installment plan. The firm may also advise you on which IRS program applies to your specific financial situation.
Golden Tax Relief can help you with wage garnishments, delinquent tax returns, bankruptcy, tax planning, and more. Let us carefully review your unique case and develop a thorough plan to resolve your tax problems quickly and efficiently.