3 Quick Tips For Dealing With Outstanding Tax Debt
The deadline for filing your 2018 federal tax return has passed.
I know you know that. You’re probably being eaten up inside knowing that you owe money this year that you don’t have or that you haven’t filed in a few years and while you wanted to file this year you think your situation is so desperate that you may as well put it off again. But, my question to you is, why dig yourself in deeper? If not now, when?
You’re Not Alone
You’re going to have to bite the bullet sooner or later. If you take the initiative now, the IRS may go easier on you than if you postpone again. And, if it’s any consolation, you are not alone. According to a recent article at cnbc.com, “Despite one of the longest-running economic expansions on record over the last decade, millions of Americans continue to struggle to pay their taxes.”
Not The End Of The World
The good news is, even though most people in tax debt over their heads don’t realize it, it’s truly not the end of the world. There are usually valid reasons why most people get behind in their taxes. The article I referenced above had some tips that are useful. I’ve extracted the 3 I feel are most useful for anyone who is facing a high tax bill or hasn’t filed in a few years because they can’t pay.
Tip 1: Don’t ignore the problem. The IRS will not. Even if you can’t pay what you owe, file your return on time or, if that’s not possible, file for an extension. The late filing penalty is 5 percent of the tax owed per month up to a maximum of 25 percent of the balance. There is also an underpayment penalty of 0.5 percent to 1 percent per month of the balance owed, also up to 25 percent. If you don’t file your return or make any payment on your obligation, your tax debt will grow rapidly.
Tip 2: Be realistic about your situation. The IRS rarely forgives tax debts. Form 656 is the application for an “offer in compromise” to settle your tax liability for less than what you owe. Such deals are only given to people experiencing true financial hardship. If you or your family have had catastrophic health-care expenses or you’ve lost your job and have poor prospects for generating income in the future, you may qualify. It doesn’t happen often.
Tip 3: Owe $10,000-plus? Hire an attorney. If you owe more than $10,000, consider hiring a tax attorney to negotiate with the IRS. Payment plans differ, and an experienced attorney can help you get better terms. They can also help you avoid having a tax lien being assessed against you, which will damage your credit.
Choose Your Attorney Carefully
Do your research and don’t be hasty when hiring a tax resolution specialist. There are unscrupulous people in every profession and the warnings about tax-debt resolution scams are many. Do yourself a favor and work with a firm that has been around for many years. Don’t work with someone who is making outrageous promises that they can settle for a fraction of what you owe. Until an attorney assesses your unique situation, no promises can be made except that they will eventually resolve your tax issue legally and you’ll get to finally have an outstanding night’s sleep.