In 2018, Americans owed the Internal Revenue Service more than $131 billion in back taxes, plus the interest and penalties accrued. What’s even more terrifying is that just over 14 million people owed all this money. That works out to a per-capita debt load of more than $9 million. Of course, there are specific people who owe tens of millions of dollars and some people who owe only a few hundred, but it does give an idea of how that debt load spreads out.
Regardless of where your debt falls along that range, you might feel fearful of what lies ahead. After all, the IRS has access to more information about you and does not need to abide by all the same rules private lenders and collectors must follow. From revoking your passport to seizing assets, there are many actions the IRS can take to make a person’s life difficult. Thankfully, it need not come to this. There are several actions you can take to resolve your tax debt problem.
What To Do When You Owe Back Taxes
It’s important to note that only a financial professional can answer this question as it directly applies to you. However, there is some general information you can keep in mind. Having this information handy makes it easier for you to ask more specific questions when you speak with a tax professional:
- File Your Back Taxes
If you have not filed your old returns just yet or made the proper amendments, you might feel hesitant to do it. After all, until you file those returns, the IRS technically has no idea that you owe them, right? That might be true for some time, but they do eventually catch on. When they do, this might pose problems for you or even your heirs.
There are potential criminal and financial penalties attached to not filing your returns. Subsequently, the sooner you get this out of the way, the better it tends to be.
- Pay as Much as Possible
There is an idea of the IRS becoming perfectly unreasonable when it wants its money. There is some truth in this, but for the most part, the agency is willing to work with American taxpayers. If you make arrangements with them early on and pay as much as you can in a lump sum and/or an ongoing basis, they might give you more leeway.
Remember: the agency has over 14 million people to pursue and more than $131 million to reclaim. The person trying to catch up on payments might not rank at the top of its priorities.
- Seek Professional Assistance
Depending on your circumstances, you might need either a tax professional, an attorney or both. They can inform you of your liabilities and rights as well as advise you on how to move forward. No matter how much you owe and how awful things might progress, having professional expertise to draw from can help to lighten the burden, boost your confidence and help you make fewer or no errors that might make things worse.
This is especially important if an IRS Revenue Officer makes an appearance in your life and begins to do some digging. Seeking representation is generally a wise move, here.
- Pursue IRS Programs
The IRS often has a few programs you can use to make more manageable payments or even discharge the debt. The three most common options are filing for non-collectible status, arranging affordable installments or making an offer in compromise.
Non-collectible status occurs when you owe way more than you can ever hope to pay back. Affordable installments allow you to make smaller payments over time. Offer in compromise allows you to make a lumpsum offer to the IRS to settle the debt. Note that there is no guarantee the IRS will allow you to use any of these programs, but they are worth looking into.
Why You Should File Sooner Rather Than Later
Failure to file the following four returns could result in spending up to $10,000 for each year you did not file or up to a year in prison:
- Form 941
- Form 1040
- Form 1065
- Form 1120
The IRS also provides its own reasons that people should file past due returns as soon as possible. Note that they encourage doing so even if you cannot pay the balance due:
- Keep Your Refunds: One of the many ways the IRS gets back money owed for prior years is to simply not issue refunds for current or future years. You could also lose the right to claim specific credits.
- Get Your SS Benefits: This mostly applies to self-employed persons, but if you do not file your returns, you miss the opportunity to pay into the SS fund. This could create problems for you if you become disabled or when you retire as you might not be eligible for benefits.
- Avoid Interest and Penalties: As mentioned before, penalties and interest can start to pile up on those unfiled tax returns, so the sooner you file them, the better. If you already struggle to pay the actual number, imagine how insurmountable the debt load might feel when the IRS adds these.
- Obtain Loans More Easily: Whether you’re applying for a zero-APR loan to consolidate your credit card debt or you’re about to buy your first home, lenders tend to ask for copies of your tax returns. Self-employed persons might need tax returns going even further back than nine-to-fivers.
How To Choose the Right Professionals
Unfortunately, there are scammers on the internet posing as genuine professionals and businesses. These people deliberately take advantage of taxpayers in the hour of need. To ensure this does not happen to you, always work with a reputable and accredited business. You also need to ensure the business hires competent professionals and puts you first.
At Resolve Tax, we have spent years creating success stories, such as one client who settled a $225,000 debt for just $20. Not only can we help you become one of our success stories, but we can offer tax preparation services to reduce the chances of you finding yourself in this position a second time. Give us a call at 1-800-721-3890 for more information today.