Owing back taxes to the IRS can create both a mental and financial hardship for taxpayers. Many taxpayers do not know what their options are for paying back taxes or where to go for IRS help. If you need back tax debt relief, contact Austin & Larson Tax Resolution to speak to a tax relief specialist today.
Owing IRS Back Taxes
Do you have back taxes or have unfiled tax returns? It can be a very stressful and scary situation to know that you owe taxes that you cannot pay. Many people go years with the knowledge that they must address this issue, however, they are paralyzed by fear. We have seen many situations where a taxpayer has not filed back tax returns for several years as they knew that the returns would show a tax debt that they are unable to pay. Others have filed and come in with piles of unopened IRS correspondence on their back taxes because they were too fearful to open the mail. They are avoiding IRS phone calls and Revenue Officers. For many, it is not until their bank account gets levied or their check gets garnished that they take steps to get back tax debt relief and IRS help.
If you have found yourself in a situation where you are unable to address your back taxes or if you need IRS help, know that you do not need to live in fear of the IRS or State of Michigan. There are several options available to address get back tax debt relief and get your finances back under control.
How Back Taxes Happen
There are many ways an individual or a business can generate a tax liability. Some examples of how an individual taxpayer may create back taxes are:
- Under withholding taxes from wages from your employer. (Ex. Claiming too many dependency exemptions on form W-4 with your employer).
- Running a small business, (DBA, LLC not taxed as a corporation, or rental activity) in which you have a profit for the current year. Small business entities do not have employment taxes automatically withheld through payroll deductions. Therefore, small business owners must make estimated tax payments either monthly or quarterly to avoid owing back taxes.
- Failure to timely file a tax return or failure to timely pay the balance due.
- Having trust fund penalties assessed against you individually for failure to remit payroll taxes for all payroll being run within a company you are a responsible party for.
A business taxpayer will generally create back taxes in one of the following ways:
- Failure to remit payroll taxes withheld from employee wages paid.
- Failure to make estimated tax payments, (depending on entity being run.)
- Failure to file a tax return timely.
- Late tax deposits.
- Failure to file or pay liabilities due on all payroll forms, (940’s, 941’s, etc.)
One consistent factor for all back taxes owed to the IRS and State of Michigan is that a taxpayer is not only liable for the underlying tax, but also for all accrued interest and penalty. Although there are some situations where the IRS may abate some or all the penalty, for most taxpayers, they will be responsible for all the taxes, interest, and penalties on their back taxes. Therefore, it is important to timely file and to pay as much as you can towards any tax owed.
Resolution Options for Back Tax Debt Relief
If you are unable to pay your back taxes, there are resolution options available. However, before you look to resolve your back taxes, you need to first make sure that you are in compliance with your current year taxes. The first thing that the IRS is going to look at is whether you have all your tax returns filed. This includes both your personal returns, your business returns, and your payroll returns. You also need to make sure that that you are properly paying your taxes for the current year so you do not generate any additional back taxes. You need to have proper withholding, timely tax deposits, and/or sufficient estimated tax payments being made.
Once you are in compliance, you can then set-up resolution on your back taxes. The IRS has multiple programs available to resolve tax debts based on taxpayers’ individual situations. Some of the more common options for dealing with back taxes are the IRS Offer in Compromise, Installment Agreement, Currently Non-collectible status, and Bankruptcy.
Offer in Compromise is an IRS program established for taxpayers that are not able to full pay their back taxes through either the equity in their assets or their future income. The IRS will review your financial situation to determine if accepting a lower amount to settle your tax debt is in their best interest. Keep in mind that there are many factors that go into an IRS Offer in Compromise as it is a complex and time-sensitive process. You should find a resolution specialist to represent you through this process.
Another option for taking care of your back taxes is the Installment Agreement. The IRS has multiple different options for setting up an Installment Agreement based on the amount of back taxes owed as well as your financial ability to pay. Depending on the amount of back taxes owed and the type of tax, the IRS may assign a Revenue Officer to your case.
A third option for resolving your back taxes is to have your account placed into a Currently Non-collectible status. The IRS will place your account into a Currently Non-collectible status if you show you do not currently have the ability to pay your outstanding tax debt. Your financial information, including your current earning potential and all equity in your assets will be considered. If the IRS determines that requiring you to make payments will result in a financial hardship, they may place your account into the Non-collectible status. This is not a permanent resolution of your tax balances. The IRS will periodically review your financial situation to determine if your ability to pay has changed. Also, they will file liens on all outstanding back taxes. These liens can negatively impact your credit. However, this program does give you time to adjust your finances, without requiring an immediate payment to the IRS.
While there are several other options for resolving tax debt, one of the less common ones is to file for bankruptcy. Many people are not aware that certain taxes can be discharged in bankruptcy. While bankruptcy is not for everyone, for those considering it, you need to make sure that your eligible tax balances are included and properly discharged.
No one wants to owe back taxes. It causes fear, stress, and anxiety. It negatively impacts your health and quality of life. However, the solution to back taxes is not to ignore them. They are not going to go away on their own. Instead, you need to be proactive and get in front of the problem. Contact our office to schedule a consultation to see what your options are and start resolving your back taxes today.
Disclaimer: Austin & Larson Tax Resolution has prepared this website for informational purposes only. This website is not intended to provide, and should not be relied on, for tax, legal, or accounting advice. To get advice regarding your specific tax situation or questions, please contact our office at 866-668-2953.