Back taxes can quickly become a source of stress and anxiety for individuals and businesses. When you owe the Internal Revenue Service (IRS) unpaid taxes, you quickly feel overwhelmed by penalties, interest, and the fear of further legal action. However, tackling back taxes doesn’t have to be an impossible task. With the right tax resolution strategies, you can navigate these challenges and regain control of your financial situation.
In this article, we’ll discuss how to approach your tax debt, including some of the most effective methods to resolve your issues with the IRS. Before diving into these strategies, it’s crucial to understand your options, including the tax resolution fresh start program and other approaches designed to help taxpayers get back on track.
Understanding Your Tax Debt
The first and foremost requirement to address the issue of back taxes is to get an idea of your current financial and tax position. In this case, the IRS sends notices explaining how much is owed, including penalties and interest charges. The process of reading through these documents and gaining insight into the total, complete picture of your debt is critical. You can also request an account transcript from the IRS that shows you your history and helps you determine if there are any discrepancies and more penalties.
After knowing the amount of money you owe the government in taxes, it is crucial to check the figures. Sometimes, errors can occur, and the IRS is not immune to such blunders. Comparing your submitted information and the information available to the IRS helps avoid overpaying taxes. If there are disparities, the first line of action may be to file for an amendment return or seek clarification from the IRS regarding the back taxes.
Effective Tax Resolution Strategies
The IRS offers various ways to help taxpayers clear their tax debts. Selecting the right approach depends on the financial capacity, the quantum of debt, and the capacity to meet the same. Here are some of the most effective methods:
Installment Agreements
Many back taxpayers find it convenient to pay through an installment agreement with the Internal Revenue Service. This arrangement enables you to discharge your tax obligation in phases and usually in installments. The advantage of this approach is that the cost is spread out so that it does not put too much pressure on the balance to clear the remaining balance without strain.
The IRS provides various kinds of installment agreements depending on your circumstances. There is usually a simplified installment agreement for those who owe the IRS a relatively small amount, making the process much easier. On the other hand, if you are in a position to repay a more considerable amount of money, then you may be required to fill in more details for you to be approved for the long-term payment option.
Offer in Compromise
Offer in Compromise (OIC) is one of the most efficient ways to deal with back taxes for people who have difficulties to pay them. This program enables you to pay your tax debt for an amount less than the total balance that you owe to the Internal Revenue Service subject to some conditions. OIC applications are approved depending on your current and expected income, expenses, the equity of your assets, and your ability to pay. In other words, if the IRS agrees with you that you will never be able to pay off the entire amount owed, they will settle for less.
The process of completing an Offer in Compromise is a lengthy one and involves the submission of detailed paperwork with regard to an individual’s financial status. But, for those who have a huge amount of financial problem, it can be a savior for them. However, not all OIC applications are approved and you have to file and pay all the taxes on time for at least five years after the OIC is signed. This condition assists in maintaining the compliance of the taxpayers in the future thereby avoiding situations whereby there is back tax.
Currently Not Collectible Status
If you are struggling financially and can really not afford to pay your back taxes, you might be able to get the IRS to consider you as Currently Not Collectible. When the IRS grants this status, they suspend collections, including levies against wages and bank accounts. You have to explain that making the payment of back taxes would leave you unable to afford basic needs in life.
Though, the use of CNC status offers temporary respite, it is not a solution that can be implemented for long term. This amount also attracts interests and penalties while the IRS will periodically check on your status to determine whether you are qualified for any changes. They may stop the collection process if they realize that your financial status is improved, and then resume the process. However, CNC status can be a vital option, when a person is in desperate need of money, as it offers a time to work on other aspects of financial rehabilitation.
Conclusion
Taxes owed in previous years can be a major issue, it is crucial to know that there are ways to get out of this problem. From installment agreements to Offers in Compromise and the current not collectible status, each option gives a unique way of handling tax debts. The way to solve your back taxes is to act fast, consider all your possibilities, and then select the right course of action based on your financial situation. If you face your back taxes squarely, it means that you can be looking forward to starting a new financial slate and not having more penalties and stress in future.