Five Ways to Get Help with Your Back Taxes
With April 15 just around the corner, tax season is officially underway. But if you are one of the 8.2 million Americans dealing with debt to the IRS, it can be difficult to know how to proceed responsibly and proactively to get your finances in order.
Fortunately, regardless of your level of debt, there are many ways that you can get help with back taxes, either with an offer in compromise or you can receive tax amnesty. However, the longer you wait, the more difficult it becomes to address your back tax problems, so if you have been avoiding taking action out of fear of the consequences, the best thing you can do for yourself is to take action now, no matter how long it has been or how much you may owe. While initial late fees are 5% of the total for each late month up to 25% of your total debt, the IRS can continue to add 0.5% of the debt amount per month to your total for up to four years of late payments. Taking action now to find ways to reduce the penalties you may have accrued decreases the likelihood that the IRS will begin an investigation and it means you can go back to collecting refunds instead of worrying!
1.) Hire a Professional
Depending on the amount of money you owe, it may be easier to tackle your debt with the help of a tax professional. Make sure your tax professional is a tax attorney, a Certified Public Accountant, or an Enrolled Agent.
If you owe less than $10,000 you may be in a position to settle your own finances. In this case, you should contact the IRS right away to find out about your options in settling up back taxes. If you owe more than $10,000, it’s very likely that you will benefit from the help of a qualified professional.
2.) Find a Compromise Solution with the IRS
The IRS offers a few options for individuals to pay their back taxes to keep you from facing unreasonable hardship. For example, you can decide to garnish your wages. This allows you to increase the amount of tax taken from each paycheck to slowly pay back the amount you owe. If your paycheck comes from non-taxed income (including unemployment or social security payments) you can fill out a Form W-4V to have tax withheld from this income. Use a W-4P to adjust income from pension annuity payments.
If your tax problems are sufficiently serious, you can work with the IRS to have your total owed amount evaluated in light of your cost of living and other expenses. This way, the IRS can determine an amount that is more reasonable for you to pay, but you will need to be able to pay the full sum at once or over a short payment plan period.
3.) File an Amended Return
Filing an amended tax return allows you to make corrections if the source of your back tax problem was a mistake when you originally filed. File a Form 1040X to make amendments if you filed with forms 1040, 1040A, or 1040EZ. If you have multiple returns with errors, you will need to fill a Form 1040X for each. However, an amended return is not appropriate for correcting simple arithmetic errors, as such errors should be caught by the IRS.
4.) As a Last Resort, Declare Bankruptcy
If, even after trying to find a compromise solution with the help of a professional, you are a still not able to pay your back taxes, you can declare bankruptcy. In declaring bankruptcy, you are legally announcing that you are not able to pay your debts. This means that your assets will be sold and your non-essential income will be used to pay back your debts.
Before declaring bankruptcy, you will need to file returns for the last four years and continue to file returns for the duration of the time period that you are bankrupt. You will have to petition to be considered bankrupt and your term of bankruptcy generally lasts for one year.
While some people think of bankruptcy as a convenient method of getting rid of debt, it is a choice that should not be made lightly as it will have long-term financial consequences and negative impacts on your credit.
5.) Evaluate Your Finances to Avoid Future Underpayments
According to the IRS, most underpayments or missed payments are the result of accidents and miscalculations. Thus, you should evaluate your situation and identify a solution based on the specifics of your case.
In some cases, individuals were not aware that they were not having enough subtracted from their paychecks. If this is the case, you can go online to change your W-4 to adjust the amount subtracted.
If you have non-taxed income, you can file to have up to 25% withheld from your pay checks or up to 10% of your unemployment checks. In addition, individuals who receive non-taxed income may find that their end-of-year taxes are much higher than expected if their quarterly taxes were too low.
Whatever your circumstances, evaluating the mistakes that led to your back tax problems will allow you to adjust your plans for the future to make appropriate payments. Consider working with a professional to come up with a new financial plan for the future if you feel unable to change past habits.
Be sure to drop by the Living Frugal with Erika’s Deal Group! There is always something new and you can chat personally with me and others! Great place to show off your shopping trips, ask questions, and so much more!