What Do I Do if I Owe Back Taxes?

     
irs back tax problems
 
Owing back taxes to the IRS may seem like frightening situation in which to find yourself. You know that the IRS has vast power to collect the debt and garnish your income. You also may fear ending up in jail because you cannot pay what you owe.
Rather than panic out of misinformation and outright fear, you should learn what measures you have to deal with your tax debt responsibly. These simple tips can help you settle your obligation and protect your income and your assets from levies or seizure.
 

File Your Tax Returns

People who know that they will owe a tax debt that they cannot afford often avoid filing their returns altogether. They figure why file and be subject to an amount they cannot pay. Why not wait to file later when they can better afford it?

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In fact, if you delay filing your return, you will still owe the tax debt in addition to penalties and fines that will substantially raise your overall obligation. If you file more than two months past the April 15 deadline, your fines could be as much as 100 percent of your tax debt or $135, whichever amount is less. You also will accrue interest on the total amount due.
 
You should go ahead and file your return even if you know you will owe the IRS money. You also can request an extension to pay your taxes. The extension request form can be found at IRS.gov.
 

Ask for a Penalty Waiver

You can also ask the IRS for a penalty waiver to help lower the amount that you owe to the federal government. You may qualify for a first-time penalty waiver if you have always filed and paid your taxes on time in the past.

Even if you do not qualify for a first-time waiver, you may still be eligible for a probable cause waiver that may eliminate or reduce the penalties owed on your tax debt. If the IRS does not approve you for a penalty waiver, you may still take part in its Fresh Start program. The Fresh Start program allows you to set up and pay regular monthly installments on your debt and avoid a tax lien withdrawal.

Contact the IRS about Debt Settlement or Resolution Options

The IRS is willing to work with taxpayers 99 percent of the time. As long as you are upfront and honest about your situation, you may be offered a plethora of ways to resolve a tax debt that you cannot afford to pay right now.

For example, the IRS may offer you an installment agreement that allows you to make payments each month based on what you currently earn. To set up this agreement, you must complete and submit IRS Form 9465, which can be found at IRS.gov.

The IRS will charge you a fee to set up the agreement. However, it lets you progressively pay off what you owe without putting your income or assets at risk of levies. Your interest and penalties might even be waived if you can pay off the debt within 180 days.

Other settlement or resolution options that the IRS may offer you include:

If you are not sure what option is best for you even after speaking with an IRS agent or reading about the choices at IRS.gov, you should consult with a tax professional. A tax pro can guide you in making the best decision based on your current financial situation. This individual can also help you request and set up the resolution option that you choose.

The IRS offers multiple ways for you to deal with a tax debt that you cannot afford right now. You can avoid levies and seizure of assets and resolve your obligation satisfactorily by using any of these strategies.
IRS Collection Letters