Facing a large tax bill from the IRS can be an intimidating experience. Whether you haven’t been able to keep up with filing your taxes properly or simply don't know what to do, it's easy to panic when the taxman comes after you, especially when that involves owing them a lot of money.
When it comes to dealing with back taxes owed and facing off against the Internal Revenue Service, many taxpayers are understandably overwhelmed—but there are several options available for those looking for relief in times like this.
In this blog post, we'll discuss how you can handle owing the IRS a significant amount of money and what steps you should take if this situation arises.
Being aware of your options can help you figure out a plan for tackling what to do if the IRS is owed money. Here are some of the usual solutions available to those who owe and cannot pay:
Installment agreements, also known as payment plans, allow you to make monthly payments over a certain period of time until the debt is paid off. To request an installment agreement, you'll have to fill out IRS Form 9465 and send it along with your tax return for the year in which you owe money.
If you're unable to pay the full amount that is owed, another option is to ask for an extension in order to make arrangements. This allows you more time to accumulate funds and settle your debt before any further action is taken by the IRS.
An offer in compromise is an agreement between the taxpayer and the IRS that allows you to settle your debt for less than what is currently owed. This option should be used as a last resort, as it requires extensive paperwork and may not always be approved.
If you are unable to settle your debt with the IRS in any of the ways mentioned above, another option is to apply for a personal loan. This can provide much-needed funds to help pay off your tax bill and get back on the right track financially.
If you're still feeling overwhelmed at the prospect of dealing with back taxes and the IRS, consider speaking to a professional tax attorney. They can help you find the best solution based on your specific situation and provide guidance throughout the process.
Not filing or paying your taxes to the IRS can result in serious consequences. For every month or partial month that you neglect to file, a 5% penalty will be assessed on the unpaid balance of your tax liability, up to an accumulated total of 25%. You should make sure you file your return, or an extension if you can't pay your taxes, in order to lessen any penalties.
Along with the failure to file penalties, there are also failure-to-pay penalties that may be imposed. This is charged at 0.5% every month that the payment is late, up to 25%. A negligence penalty may also be assessed when filing an incorrect return that did not report income properly and failed to allow deductions or credits that you were allowed based on qualifications and eligibility criteria.
When these penalties accrue, they will increase over time until they are paid or other arrangements are made that satisfy the government’s requirements.
An Offer in Compromise (OIC) is a way for taxpayers to reduce the amount they owe the IRS. This type of agreement allows the taxpayer to pay less than the total debt owed, potentially eliminating the debt for just a fraction of what is owed.
In order to apply for an OIC, taxpayers must use the April 2022 version of Form 656-B, which can be found on the IRS website. Before sending off the application, it is important to ensure that the current and past two-quarter payments are ready as they are required for the application process.
Additionally, it is important to understand that the IRS will only consider an OIC if the taxpayer is unable to pay their debt in full through an installment agreement and if the amount offered by the taxpayer represents the most the IRS can expect to collect within a reasonable period of time. Consequently, it is essential to evaluate all of your financial information and circumstances before submitting an OIC application.
Receiving a tax bill from the IRS can be daunting, but forgiveness may be possible in certain circumstances:
If you're unable to pay your full tax bill due to financial hardship, it's worth accepting that the IRS may offer lenience or partial debt relief.
Further, if you're medically incapacitated or have passed away, some or all of the debt might be forgiven.
Alternatively, if you can show that you've tried to comply with tax laws but were hindered by difficult circumstances, there is the chance of the debt being overlooked.
So, if any of these scenarios apply to your situation, don't delay in reaching out to the IRS and considering the options they make available to you.
There are many options that can be explored to help relieve the burden. Installing payment agreements or submitting an Offer in Compromise (OIC) are some of your most common options, but exploring other choices such as partial payments or short-term extensions may also prove beneficial. Don't let tax troubles overwhelm you; take advantage of assistance programs and get back on track today!
If you require assistance in selecting the most suitable option for your situation, consulting with a certified tax attorney can be extremely beneficial. They are well-versed in all available choices and will provide direction to ensure that you get the best outcome.