Tax Relief Options for Back Taxes Owed
According to the Internal Revenue Services (IRS), the back taxes owed in 2019 was about $125 million. Nobody sets out to fall behind on their taxes, yet so many patriotic Americans find themselves deep in debt. Simple mistakes like an error in calculations and late filing can land you on the IRS’s delinquent list.
Whatever your reasons, falling behind on your taxes can have serious consequences. In addition to the penalties and interest, the IRS can seize your assets, revoke your passport or charge you with tax evasion. The good news is that you can always do something about your tax debt. Hiring a tax professional can help get your books in order and provide tax relief you desperately need.
Setting up an IRS installment agreement is one of the best ways to chip away at the back taxes owed. This arrangement lets you pay your taxes in small amounts you can afford. You can either go for a short term or long-term installment agreement. The approval will depend on the amount of you owe in back taxes. The traditional way of setting up an installment payment plan is by filling IRS Form 9465. But thanks to technology, you apply online using the IRS payment agreement tool. The chances of getting approval are better if
- You inform the IRS that you plan to pay in three years.
- You negotiate for a slightly higher monthly installment.
Installment agreements only work if you are confident you will pay the back taxes owed as per the plan. Although the agreement makes you compliant with it, things can worsen if you fail to honor the agreement. The other problem is that the penalties and interest continue to accrue. We recommend using this option only if it’s the best you can get. Otherwise, it’s worth looking into other tax relief methods.
Offer in Compromise
Offer in Compromise is arguably the best way of settling back taxes owed. Its biggest selling point is that it allows you to settle your tax debt for less than the full amount. However, it is only a legitimate option if you can prove to the IRS that you are undergoing financial hardship. The IRS looks at the following when evaluating your application.
- Ability to pay
- Total income
- All assets and equity
There are two routes of paying back taxes under OIC. It can either be lump-sum cash, where you pay an initial payment of 20% of back taxes due. The remaining balances are settled in five or fewer installments. The other alternative is period payments; after the initial payment, the rest is spread over months until you complete paying the agreed-upon amount. To qualify for OIC, you must have no delinquent returns for the current year or an open bankruptcy.
Innocent Spouse Relief
While jointly filing your taxes has its benefits, it also puts both parties on the hook for any back taxes owed. There is nothing wrong with jointly filing your taxes unless one spouse knowingly or unknowingly understates or omits items when filing. Innocent spouse relief can be useful, especially if you are divorced or separated. It is important to mention that innocent spouse relief only applies to individual income and self-employment taxes. Here are the other conditions you must meet to qualify.
- You did know of the error in the joint returns when you signed.
- The error was not an elaborate scheme to defraud the IRS.
- It would be unfair to hold you responsible for the understatement of the tax returns.
In addition to a tax professional, you will also need a tax attorney in NYC to resolve the matter. Depending on the proof, you may get full or partial relief. Either way, it will reduce your tax burdens.
Currently Not Collectible
Although it’s a temporary solution, applying currently not collectible buys you time while you arrange to pay the back taxes owed. If you are granted a CNC status, the payment is deferred. That means, the IRS won’t subject you to their collection efforts for a while as they monitor your situation. However, to qualify, you must demonstrate your inability to pay your back taxes. Requirements include
- You are unemployed with no source of income.
- Your only source of income is welfare or unemployment benefits.
- Your living expenses are within limits, and you have very little left after catering for basic needs.
Currently Not Collectible may not be the best option since it doesn’t help you pay your back taxes. The initial tax debt, interest, and penalties will also continue to accrue during the period. But it can give you the breathing room you need. The application requires gathering financial documents, filling out financial statements, and analyzing the data. These are tasks that the tax professionals at True Resolve are best equipped to handle.
Making a dent on back taxes owed can be challenging due to penalties and interest. The state of New York is unforgiving for tax offenses, such as failure to file, pay, or deposit on time. There is a 5% penalty for late payment and another 10% for incorrect calculations. Every mistake costs money. Fortunately, these costly errors can be waived if it’s your first time. This tax relief option is available if you meet the following conditions.
- You must have filed all required returns.
- You must be current in your payment or made arrangements to pay all back taxes owed.
- No outstanding penalties for the previous three years.
As you can see, IRS penalty abatement requires a spotless record. If you meet these conditions, our tax professionals will help you make the request. It can be done by either calling or emailing the specific compliance unit. Although the waiver is usually applied over the phone call, it is confirmed by mail from the IRS. We may need a power of attorney to sufficiently assist you since it requires access to your account. Don’t let one mistake ruin your otherwise spotless tax history.
Amending Past Returns
Penalties resulting from errors only add to the total amount of back taxes owed. Amending past returns can help avoid hefty fines and improve your tax status. The state of New York allows taxpayers to make corrections when they learn from their mistakes. Here are the circumstances when amending your return is recommended.
- You recently got married but forgot and filed single.
- The number of dependents changed, but you forgot to correct it when filing.
- You forgot to claim your tax credit
- The back taxes due are more than what was paid.
- Incorrect income figures for the year.
To amend your New York Income Tax Return, you must fill out form IT 201-X. However, this form can only be submitted in person or by mail. Alternatively, you can use Form 1040X from the IRS. The sooner you amend your returns, the better.
Get Help with Back Taxes Owed
There is always a way to deal with paying your back taxes if you are willing to negotiate with the IRS. Doing nothing only makes matters worse. At first, the notices will seem benign. However, after a while, the IRS will resort to more aggressive methods. If you continue ignoring your tax debt, you could lose everything or even go to jail. Fortunately, you can redeem yourself by talking to a tax professional. True Resolve Tax Professionals has a team of IRS enrolled agents and experts ready to educate you on your rights and negotiate with the IRS on your behalf. Contact us today for help on paying back taxes owed.