Blog

If you don’t pay your full tax liability or fail to file a return, you could face heavy penalties at both the state and federal levels. Even if you can’t pay back the IRS right now, putting it off isn’t the right answer. The longer you wait to address the situation, the more negative consequences you may face. Taxpayers should address tax issues quickly to avoid jail time, steep fines, high interest rates, wage garnishment, and having property confiscated.

 

Penalties for Failing to File or Pay Taxes

At the state and federal level, you’ll face similar consequences for failing to file your return or pay your full tax liability on time. Here are the general penalties you may face:

• Interest on tax not paid before the due date. You’ll have to pay interest even if you qualified for an extension.
•  Late filing. If you file your state return late, you’ll have to pay 5 percent on the tax amount every late month, up to 25 percent.
•  Late payment. You’ll have to pay a penalty charge of 0.5% of the tax amount for every late month, up to 25%.
•  Erroneous tax calculation. You’ll have to pay 10% of the difference between what you report and what you owe if your tax amount is off by over 10% or $2,000 (whichever amount is higher).
• Additional penalties for negligent reporting, fraud, and underpayment.

You may have noticed the penalty for failing to file is much steeper than the penalty for failing to pay your tax liability. Always file your tax return, even if you’re not sure how you’re going to pay your tax bill. You can always seek professional guidance to find a solution to your tax issues, but failing to file will compound the problems you face with the IRS.

Both individuals and businesses can face these penalties. The larger the tax bill, the more impact each penalty can become. Small businesses and individuals can get into financial trouble easily if they fail to prepare and address tax issues quickly.

 

Avoiding and Lessening Penalties

 Fortunately, there are several ways individuals can reduce the impact of penalties on their lives. Some people wrongly believe not paying is the best way to avoid penalties, but failing to file or pay leads to more penalties and may also lead to collection actions and other negative consequences.

Typically, the IRS is willing to work with individuals who want to address their current situations and avoid similar situations in the future. They offer penalty abatement and tax liability relief options for people who may not have the income or the capital to pay of their debts.

Some individuals may qualify for penalty abatement. If you have a valid reason for failing to file or pay your taxes, the IRS is willing to lessen or remove penalties associated with your case. If penalty abatement is not an option, there are other tax relief strategies available. You may qualify for an offer-in-compromise, retrospective deduction, installment agreement, or other relief program. While you can talk with the IRS and navigate the tax code on your own, you may want to seek out a professional before doing so.

A credible tax resolution professional has the tax code expertise and the resource network to help find the best strategy for your personal or business tax issues. Whether you disagree with the IRS’s decisions or need help finding a strategy to resolve outstanding tax debt, the professionals at Long Island Tax Resolution Services have a clear process in place to help each individual achieve the best possible outcome.

When you contact us for a free initial consultation, we’ll discuss your financial situation and the potential strategies to help decrease penalties and your total debt liability. We’ll then develop a clear approach while providing you with the information you need to make informed decisions. You don’t have to accept every notice from the IRS as the letter of the law. There may be an alternative solution. Contact us today to find out more.

If you owe the IRS and are going through a period of financial hardship, there are ways that you can get relief. Being buried under debt can be emotionally and physically exhausting, but knowing how to approach the situation can make it easier to handle. The IRS Fresh Start Initiative and other resolution tactics can make a significant difference in your debt burden. This is what you need to know about IRS tax debt resolution Program.

The IRS Fresh Start Initiatives

Beginning in 2011, the IRS Fresh Start Program Fresh Start Initiatives Was were designed to help struggling taxpayers and businesses meet their debt requirements without suffering undue penalty and interest. The changes made it possible for taxpayers to use three improved outlets to pay off tax debt:

• Installment agreements – If you can’t pay off a debt all at once, you can put up to $50,000 of debt as an individual or up to $25,000 as a business into an installment agreement. While these agreements have always been available, the initiative made it easier for taxpayers to use the agreements to settle debt. Under the agreement, you would make monthly payments not to exceed 72 months. Taxpayers can easily apply for an agreement online.

• Offers in compromise – Allowing taxpayers to settle debts for less than the full amount owed, offers in compromise have become more flexible and cover a larger portion of taxpayers. If you can prove that a settlement amount is the most you can possibly pay within a period of time, the IRS may accept that as a reasonable offer. You can pay off an offer in compromise in lump sum or through an installment agreement.

• Tax liens – Under the fresh start tax program initiative, the IRS has raised the amount at which it will file a tax lien against a debtor. In most circumstances, the IRS will not file a lien against a taxpayer unless he or she owes $10,000 or more. A soon as a taxpayer has met the requirements (i.e., negotiated a payment plan or paid off the debt), he or she can file for the withdrawal of the lien.

The IRS is interested in collecting as much as it can from individuals and businesses who owe money. These programs help taxpayers make responsible decisions instead of shying away from obligations. If you owe the IRS, there are also other alternatives that may be helpful to reduce or pay back the debt owed.

Other Debt resolution Programs for Individuals

As an individual taxpayer, here are some other methods of tax relief you may want to look into:

• Past returns – Reviewing, filing, and amending previous tax returns can reduce tax liability. If a mistake was made and/or if you were owed a refund in previously unfiled years, shoring up your tax returns can improve the outlook of your current tax liability. You can only claim a refund within 3 years of the tax return year, and any potential return may be applied toward other tax debts.

• Innocent spouse relief – If you filed jointly with a spouse who filed a return incorrectly, you may qualify for innocent spouse relief. The IRS won’t hold you liable for the amount, if you can prove that you had no knowledge of the tax responsibility or error.

• Financial hardship – Anyone who is going through demonstrable financial hardship may qualify for status as “currently non-collectible.” These temporary delays may be enacted to give you time to pay the debt without compromising your immediate well-being.

Other Debt Resolution Programs for Businesses

A business in crisis may not see the same level of assistance from the IRS. The agency may choose to close your company instead of helping you find better ways to pay the debt you owe and keep your business in operation. If you have neglected to pay payroll and other taxes, you may want to consider contacting a professional to evaluate your options. Every business is different and may have different resolution tactics available to minimize the impact of tax debt.

Contacting a Professional

Filing for bankruptcy should always be a last resort for individuals and businesses that owe the IRS. A tax resolution expert who is an enrolled agent will have the in-depth tax information needed to help you dissect your situation and develop a strategy for addressing your debt. Very rarely is debt completely forgiven, but there are several programs that can minimize its impact on your life.

Learning more about your situation is the first step to getting your relationship with the IRS back on track. Avoid tax liens and having your assets compromised by reaching out to Long Island Tax Resolution Services today.

Finding out that you owe back taxes to IRS can be a disheartening experience. Whether you knew it was coming or you are completely taken off guard, now is the time to start thinking about how you’re going to handle the debt.

Initially, it’s important to stay calm. There are steps you can take to resolve your situation successfully. Patience can also help you get through this tough time. It may take several weeks or months and a number of back-and-forth interchanges to get you and the IRS on the same page and moving toward a common goal.

First Steps

If you received a letter from the IRS indicating that you owe back taxes, contact the agency for clarification. You can write or call the department and ask for help understanding why your tax bill has changed. The information provided may lead to you to re-evaluate your current year’s return preparation or to seek outside help.

Instead of accepting a tax return as is, get a second opinion from a professional to ensure that the return has been completed properly. Individuals and professional tax preparers can easily make mistakes that can change a person’s tax outlook. Get a second opinion to determine a) if you have applied all the relevant credits/deductions and b) if there are any numerical or calculative mistakes that are skewing the return results.

With back taxes owed to IRS, you may want to consider seeking the advice of a tax resolution expert. A legitimate tax resolution expert who has a legal background, demonstrated success, and a transparent approach to the resolution process may be one of the best ways to approach your debt.

Working with a tax resolution expert offers a couple of distinct advantages. A professional can speak with the IRS on your behalf, has a deep understanding of the laws and IRS code, and will know several resolution alternatives that may be viable for your situation. Without professional help, individuals who don’t understand the IRS code could end up paying more than necessary over a longer period of time.

Additionally, professional help can deliver peace of mind that you are doing everything within your power to resolve your debt situation successfully. Individuals and companies that are owing back taxes commonly seek the advice of tax resolution specialists before making arrangements with the IRS.

 

Negotiating a Settlement

As with any other debt you take on, tax debt is subject to penalties and interest that can compound over time and leave you paying off a far higher bill than necessary. There are several ways to minimize the debt you owe, including proving financial hardship, proving extenuating circumstances, and decreasing interest and penalties under the safe harbor rule.

You may have read about payment plans and ways to reduce penalties and interest, but there are other rules that may help you minimize your debt. A professional can help you evaluate your overall financial standing and choose a settlement strategy that will benefit you most. Whether you choose to have your case reviewed by a professional (typically free of charge) or settle your debt on your own, avoid agreeing to use personal credit cards and other financial assets like your retirement plan to pay off your debt. Doing so could lead to even more interest and taxes owed.

 

Common Questions Answered

You may have a long list of questions when you find out you owe back taxes. Here are some of the most common questions answered:

Can I still get a refund if I owe back taxes?

If you truly owe back taxes and it’s not a mistake, you will not be able to claim a refund. The IRS will take money from any refund (state or federal) and apply it to your debt.

Can I buy a house if I owe back taxes?

Every debt situation is a little bit different. Some people can still purchase a home, while others can’t. The answer depends on your payment plan, your debt-to-income ratio, your credit score, and other factors. Consult a professional before trying to apply for home loans if you owe back taxes.

Are there credits I can still claim to offset the debt?

There may be other credits that you can claim once you have discovered that you owe back taxes. A professional can help you determine if there are applicable deductions or credits that should have been applied to offset the amount of debt or erase it entirely.

There is no need to panic, even if you owe a significant sum to the IRS. Contact Long Island Tax Resolution Services today for IRS back taxes help.