Most people and businesses are happy when tax season comes around, as they get to enjoy refunds from taxes they paid throughout the year. But what happens if you find out that you owe IRS money? Tax issues with the IRS can be intimidating for both individuals and businesses. The situation can also quickly become complicated and overwhelming. That’s why we are here to help teach you how to settle your tax debt.
If you find that you owe taxes to the IRS, there may be several reasons why. It could be as simple as having too little money withheld from your paycheck, or as complicated as filing an inaccurate tax return. Regardless of the reason, owing money to the IRS easily results in tax liens, levies, and penalties. You may owe a small amount that eventually skyrockets to thousands of dollars.
If you owe IRS money, seeking tax resolution services is how to settle your tax debt with less hair pulling. We work closely with you to resolve individual and business-related tax issues. We can also help you understand the tax situation you face while negotiating with the IRS on your behalf.
Reasons Why You May Owe Money to the IRS
In most cases, the IRS withholds more money in taxes than you owe. This is what results in a refund during tax season. However, there are circumstances where you may find yourself owing money to the IRS. Here are some reasons why.
1. You Had Too Little Money Withheld.
If you received a raise during the year, you would have changed the form W-4 that you provide to your employer. However, the HR office may not immediately implement such a change, resulting in too little money being withheld from your paychecks.
Come tax season; you may find yourself owing money to the IRS. It’s important to know how to settle your tax debt as soon as possible, as owing back taxes can result in both liens and levies.
2. You Had Extra Income That is Taxable.
Another common reason why people owe IRS money is that they received income from alternative sources. For example, income from investments, a sale of shares, or independent contracting needs to be reported to the IRS.
Such income typically does not have taxes withheld at the time you receive payment. However, it is still taxable for income taxes and in some cases social security and Medicare. Failure to report additional income to the IRS may result in a past due tax bill.
3. Getting Married or Filing for Divorce
With all the joy that comes with a new marriage, a higher tax bill will certainly dampen your mood a little bit. Indeed, newly wedded couples filing jointly may end up in a higher tax bracket than before. If too little tax was withheld from either spouse’s paycheck, you might end up with a tax bill at the end of the year.
The same scenario may apply during divorce. If you end up filing single after marriage, you may no longer be eligible for deductions that you qualified for during marriage.
4. Receiving Unemployment Benefits
Income from unemployment benefits is taxable. Due to the financial hardship one may experience during unemployment, you may choose not to have this tax withheld from your pay.
However, the IRS will come back at a later date to collect what you owed from unemployment benefits. This may ultimately result in a tax bill down the line and you will need to know how to settle your tax debt.
Tax Consequences for Individuals
If you owe the IRS money, it’s advisable to work with them towards repaying what is owed. You can easily end up falling behind and being thousands of dollars in debt with the IRS. Also, there are significant tax consequences that you can face with past due taxes, some of which include tax liens and levies.
A tax lien refers to a legal claim that is made against your property by the IRS. When in tax debt, the IRS focuses on protecting the value of the debt so it can recover funds owed. Having a lien against your personal property can prevent you from selling or transferring ownership in real estate and other financial assets.
You can also have a levy issued against your possessions and income. A levy refers to the legal seizure of your property to satisfy your tax debt. This means that the IRS can seize and take away your possessions or income to settle the value of past due taxes.
Tax Consequences for Businesses
Owing taxes as a business can be particularly challenging. As opposed to individual taxes, business debt is often more complicated. You could face numerous problems with local, federal, and state authorities for any money owed to the taxing authorities. For example, your business could face tax liens, levies, and additional penalties.
Tax penalties come in the form of IRS and state penalties. IRS penalties include fines for filing late, failing to file, or failing to pay the tax due on time (such penalties can amount to 25% of your original tax bill). Also, the state of Colorado can impose fines of anywhere between 10-150% of what you initially owed. These fines arise from past due taxes, failure to pay sales tax, or delayed filing of returns.
Our Tax Resolution Services
When you owe IRS money, the consequences for both individuals and businesses can be extensive. It is also stressful and confusing when figuring out how to settle your tax debt. If you have IRS-related debt, tax resolution services are your best option towards resolving the amount you owe.
At True Resolve Tax, we’re more than just tax resolution professionals. We’re also licensed agents who can help both businesses and individuals to achieve tax relief from liens, levies, and penalties. And we do more than just that. We also represent your interests to the IRS while negotiating directly on your behalf. No matter your tax burden, we can help you arrive at a resolution with the IRS and avoid any tax issues in the future.