How to Get Rid of Back Taxes?
Depending on both the amount of the back taxes owed and how many years have been missed can determine how the taxpayer should go about solving their tax problem. Every filer should assess their financial situation as they look at what options are available for individuals or couples who may owe back taxes, but it’s best to do so sooner rather than later, as it is better for the filer to be upfront with the IRS instead of waiting for them to collect what is owed instead.
Over 100 million Americans file their income taxes each year. Of that 100 million, an estimated 11.23 million Americans owe overdue taxes, otherwise known as back taxes. An amount totaling more than $125 billion dollars is owed by taxpayers, either because they did not pay the correct amount or they failed to file their taxes at all. Filing taxes can be stressful for any filer who may be uncertain of all the proper forms to file for their marital and employment status, as well as paying the correct amount that is due. Though many filers typically receive a refund, they should not expect one until they have looked over all of their paperwork to make sure that they have paid enough during the year to receive one. This is especially important for taxpayers who are self-employed or are considered independent contractors, as they are responsible for making all tax payments themselves.
Tax Relief Programs
Tax relief programs are available for taxpayers who have fallen behind in their taxes without the current resources to repay what they owe. These programs also apply for taxpayers who have forgotten to file their taxes to the IRS for several years. If the taxpayer is not sure what is owed or when he or she last filed, he or she can set up an account on the IRS website, verify his or her identity, and see any payments that have been made for the last two years. This can help the taxpayer understand what his or her outstanding balance may be so he or she can apply for the correct program to get the filing status back on track. The filer is able to apply for the three following programs:
- IRS Payment Plans, including both long term and short term.
- Offers in Compromise
- Currently Not Collectible Status
These are all programs that the filer can file independently, or he or she can hire a tax relief company to do for him or her. The benefit of taking advantage of some of these programs is that the filer does not have to fear that the IRS will have to use the legal system to obtain the funds that are owed, as the government has the ability and resources to garnish wages or bank accounts as well as file for a tax lien. If a filer is unsure how to proceed with a tax relief program, then he or she may look into hiring a tax relief company to help fill out the correct forms and check for eligibility of the different programs. However, it is important for the filer to be aware of the deadlines for filing, as some tax relief companies may not respond back as quickly as is necessary. They also may charge a percentage of what is owed by the filer for assistance, so if the amount owed is large, then the filer must take this into consideration.
IRS Payment Plans
The most common method to pay back taxes that are owed is in either a long or short-term payment plan, which allows the delinquent filer to pay back what he or she owes in installment over time. Short-term payment plans are to be paid back in 120 days, while long-term plans are paid back in more than that time. To be eligible for a long-term payment plan, the total balance of back taxes owed has to be less than $50,000, including all interest that is owed or fees that apply. For the short-term plan, the balance can be up to $100,000 dollars also including interest and fees. Being on either one of these payment plans does not stop interest from accruing, and it will continue to accrue until the balance owed has reached zero. How payments are made will determine if there are any additional fees for processing, as most debit and credit cards are charged for this. Depending on which plan the applicant is applying for will determine how they apply and if any fees are due at the time of turning in the application. Knowing these small details will help the applicant choose the correct plan for him or her to pay back his or her taxes in the most timely fashion. The IRS website outlines what an applicant needs to file and also lists its rule for eligibility for both plans.
Offers in Compromise
An offer in compromise allows delinquent filers to settle their back taxes with the IRS for less than what is owed. Offers in compromise are rarely accepted by the IRS and only go to applicants who have proven that they are unable to pay what they owe, or it would be too hard to pay it back. The IRS looks at the filer’s ability to pay, income, assets, and his or her regular expenses to determine eligibility. To apply for an offer in compromise, a filer must:
- Pay a one time non-refundable filing fee of $205, although low income filers may be able to get a waiver for this fee.
- Make a non-refundable down payment of 20% of the settlement.
- Be current on all tax returns; if the delinquent filer has not filed at all in several years, he or she may not be eligible.
- Not be in the middle of an active bankruptcy.
The IRS can place a tax lien on the filer for the duration of the settlement process.
All other instructions and forms can be found on the IRS website. Once an applicant has filed for an offer in compromise, the IRS will suspend collections activities until the offer has been accepted or declined. It is important for the potential applicant to know that some of his or her information might be made public through the IRS public inspection files. If the IRS rejects the offer, then the filer only has 30 days to appeal this decision. A Las Vegas IRS tax debt attorney can help a filer navigate the process and be able to help with any potential appeals.
Currently Not Collectible Status
If the delinquent filer is unable to pay taxes and still maintain his or her current living expenses, then he or she may be able to apply to be put into currently not collectible status. This status means that the collection process will be delayed, not that the tax debt has been forgiven. However, for a temporary amount of time, the IRS will halt its collections and check-in annually to see if the filer’s status needs to be updated by having this status revoked. The IRS may ask the filer to fill out a Collection Information Statement to prove the state of his or her finances to puts him or her in the not collectible status. This information will include details about the filer’s monthly income and expenses. It is also important for filers to know that even if they are currently in not collectible status, it does not mean that the IRS disqualifies them from having a tax lien filed against him or her. If the potential applicant has been unemployed during Covid, then he or she may look to see if he or she may be eligible for this option.