While tax preparation and tax planning services are important to all taxpayers, there are those who need Tax Debt Resolution services as they sometimes find themselves in a position where they do not currently have the funds available to pay their taxes.
If you owe more than you can pay with your tax return, don’t panic. The first order of business is to make sure that you file on time to avoid penalties for late filing (which can be more onerous than late payment penalties).
If you cannot pay the entire tax liability due, but can pay a portion of it, then pay as much as you can by the due date to minimize interest and late payment penalties. You can file IRS Form 9465 Installment Agreement Request with the filing of your annual Form 1040. To learn more about making actual payments to the IRS, refer to our May 6, 2014 blog posting.
If you have a home equity line of credit (HELOC), consider using that LOC to pay the balance of taxes due. You may be able to pay the taxes due using your current credit card, but you need to consider the credit card fees that would be charged and compare those to the IRS interest and penalty charges.
The IRS’s website (http://www.irs.gov/) also includes Online Payment Agreement Applications for individuals who owe $50,000 or less in combined tax, penalties, and interest and are in compliance with the filing of all tax returns. The dollar threshold for businesses who are current with their tax filings is $25,000 or less (again looking at the combined taxes, interest and penalties owed to the IRS).
For those individuals and businesses who owe more than the aforementioned dollar thresholds, there are installment plans available that will require the submission of detailed financial information so that the IRS can determine what you can afford to pay using its formulas.
If you do enter into an installment agreement with the IRS, consider using the IRS’s direct debit agreement where the agreed amount is automatically debited from your checking account each month. If you use this program (required when IRS debts exceed $25,000), the IRS’s fee to enter into an installment agreement is reduced and you won’t have to worry about writing and mailing a check on time every month. A word of caution: The IRS may take some time to set up this debit agreement and thus you may have to send the IRS a check for the first month or two until the debit plan has been established with your bank.
Certain individuals may also qualify for the IRS’s offer in compromise (OIC) program Click here to learn more about the OIC program. Under this program, the IRS and taxpayer come to an agreement as to an amount the taxpayer can afford to pay in lieu of the total amount due.
Whatever you do, do NOT ignore IRS tax bills. If you ignore IRS notices about taxes due, the IRS will very likely take collection actions to collect its taxes. If you are having a financial hardship, share your hardship with the IRS and see if it is willing to work with you.
When dealing with the IRS regarding non-filing of tax returns and outstanding debts, the taxpayer needs to seriously consider engaging a tax professional who has the training and expertise in working with the IRS to resolve these issues. Such a professional will be able to advise the taxpayer of the options available to him, the length of the process (which can be as little as a couple of days for an installment agreement where less than $50,000 is owed; to over a year if the IRS is reviewing an OIC offer.
If you want to learn more about filing prior years’ tax returns and resolving tax debts owed to the IRS, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation.
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