Last month was the deadline for taxes, and the IRS received more than 131 million tax returns. If yours was not one of those, it is a good idea to take action as soon as possible. In just the past two years, the IRS has cracked down on delinquent taxpayers and has tried to hunt down an estimated $30 billion in back taxes, interest and subsequent penalties.
If you do not know where to start, here are some tips to get you on the right track to paying down your back taxes with the IRS.
1. If you haven’t filed your return, file it as soon as possible. Doing this will reduce the $95-monthly fee, which is a failure-to-file penalty. If you choose to hide from your tax debts, you could increase your tax bill 25-percent or more, and you could potentially face jail time. According an interview conducted by Karen E. Klein of Bloomberg Business Week, it is important to file if you are self-employed “since you won’t get Social Security credits toward your retirement if you don’t report self-employment income within three years of the due date.”
2. When you file your return, pay as much of your tax liability as you can afford. After 45 days, the IRS will send you a bill as a reminder to pay. So while you are waiting for your IRS mail to arrive, save as much money as you are capable of, so you can pay off as much of the IRS balance as you can. If you are interested in making monthly payments, the IRS can help you initiate limited installment payments. “If you owe both state and federal taxes, it’s best to pay your state taxes and then try to negotiate a payment plan or settlement with the feds to avoid dealing with two agencies at once,” wrote Klein.
3. Meet with a tax professional. Tax resolution attorneys will be able to answer any questions you may have about paying off your back taxes. A tax resolution lawyer will also know which forms you will need to file to avoid potential penalties and fines. Companies like U.S. Tax Shield can get you connected to the right tax professional for your needs.
4. Consider an IRS settlement. For those Americans who owe lots of money to the IRS, you may be able to settle on an “offer in compromise,” an arranged settlement between taxpayers and the IRS where the tax payer may have the option to pay off less than they owe if they agree to clear their tax bill. There are many hoops you have to jump through, such as paperwork and various IRS forms, but if granted permission, you may be able to dodge severe consequences like garnished wages or other collection litigations.
5. Self-improvement may be the only thing that will prevent you from making similar mistakes in the future. Make sure to put enough money away for taxes, or adjust your paycheck deductions and possibly receive a tax return this time next year.