Why Do I Owe So Much In Taxes
There are many Americans who spend sleepless nights wondering what their balance due with the IRS could be. Has it gone up or down in the past year? What penalties do I have? Should I worry about the fact that I haven’t opened that recent notice?
Taxes are confusing, frustrating, and sometimes rewarding depending on your situation. We understand there are many hurdles to jump before reaching the finish line. Hopefully, this article will help with some of that. However, when dealing with the IRS, it’s best to contact a Tax Professional to ensure your returns were filed correctly and also to assist in resolving any balances due without you having to speak to the IRS.
I Owe Money to the IRS; What Should I Do?
There are many different reasons as to why a taxpayer owes money to the IRS. It could be you figured your taxes incorrectly and therefore did not have enough withholdings or didn’t make enough Estimated Tax Payments. It could be life threw you a curveball and you used the funds for something else, like a hospital visit, childcare, or elderly care. Whatever the reason it should not be ignored and needs to be dealt with head on!
The first thing you should do is consult a qualified tax professional. Have that person review the returns to make sure the balance due is accurate, and you did not miss something. While you are at it, have that person review your last three years returns for any opportunity to amend and get a refund. Now is the time to try to find some money.
You could also contact the IRS on the phone or do so in person through a local IRS office, but check first to ensure they will be open and staffed. If you do decide to go this alone, here are the first four questions you will be asked before even talking about your tax balance due.
1. Your current address.
2. Your telephone number.
3. Where you bank.
4. The name of your employer.
You are probably thinking, my goodness those are personal questions. Correct, the IRS wants to know this information in the event you default on a payment plan they can begin enforced collection action, which means issuing levies to your bank accounts and/or garnishing your wages.
Please, before contacting the IRS and going ahead on your own, consider speaking with our tax resolution specialists at Legacy Tax & Resolution Services for a free consultation. 855-829-5877
Should I File My Tax Return Even if I Can’t Pay?
Always file a tax return, even if you cannot pay the balance due. A Failure to File Penalty will be assessed and currently, this penalty is 0.5% per month, with a maximum of 25% of your total tax bill. Yes, you will also be hit with a Failure to Pay penalty, but why punish yourself twice?
IRS Notices
First, it’s important to know the IRS will not call you to pay your tax bill. They will, however, send you several notices of balances due including penalties and interest updates. If you owe a balance due to the IRS, it’s important to check your mail on a regular basis to ensure you are responding to urgent notices in a timely manner, meaning by the due date.
The IRS will send notices starting with a fairly benign letter. It will remind you there is a balance due and that you have penalties and interest that are accruing. If there is still no response from the taxpayer, they will continue along until you receive the CP501 letter. This letter is the beginning of a very stern reminder and at this point you should initiate contact in some way. The CP501 letter doesn’t seem too bad as it’s, again, reminding you of a balance due. In 30-60 days you will receive a CP503 letter, then in another 30-60 days you will receive a CP504 letter, which states Notice of Intent to Levy or Seize your Assets.
Once the CP504 letter is sent, the next Letter is a Letter 11 or Letter 1058, which is the FINAL Notice of Intent to Levy. Once you are in receipt of this letter, now is the time to figure out how you are going to resolve your tax debt because in 30 days without a response to this letter, the IRS will pursue levy action.
If you have more questions, we can help. Call us today 855-829-5877.
What If I Ignore IRS Notices?
Ignoring an IRS Notice can do much more damage than good. Remember, you owe them money and it’s highly unlikely they are going to forget about you and drop the case. Quite the opposite will happen the more time that passes. Here are some examples of what could happen:
- Tax Lien: A lien is a public notice stating the IRS has a right to your current assets and any assets you acquire after the lien is filed. It will most definitely affect your ability to obtain credit.
- Levies: A levy can attach to any asset, property, you have. This includes wages or commissions, bank accounts, cars, homes, even state tax refunds and Social Security benefits.
- Seizure of Assets: In extreme cases, the IRS will start the process of seizing assets, such as cars, boats, homes, planes, etc. They will list your assets in a public auction site for 30 days, and if payment is not received then these assets will be up for sale to the highest bidder. In addition, you probably are not going to see any money from this sale as it will go toward your IRS tax bill.
- Jail Time: Although rare and usually only applicable in cases of fraud, taxpayers could face criminal charges for tax evasion, which can result in jail time.
What If I Can’t Pay What I Owe the IRS?
If you find yourself in a situation where you cannot pay your tax bill in full, the IRS does have options for repayment. Each option depends on your balance due, when your balances are set to expire and your current financial condition. If you find yourself in a place where you are not sure which option is best for you, please reach out to Legacy Tax & Resolution Services, LLC at 855-829-5877
There are many Installment Agreements available to assist taxpayers who owe $10,000 or less to $100,000 or less. Choosing the right one is based on your balance due, the collection statute end date and what amount could you afford to pay monthly until your balance due reaches zero. In addition, there are options available to avoid a Federal Tax Lien from being filed.
This option is much harder to obtain and is used for taxpayers who cannot possibly pay the tax liability owed as it would cause an undue financial hardship. Before heading down this road, it’s best to contact a tax resolution specialist for more information and guidance to ensure this is your best option available.
Currently Not Collectible Status
In some cases, the IRS will agree you are unable to pay your tax debt without it causing a financial hardship. Typically, they will allow you to not make any payments for two years with a review at that time. In this case, although you are not required to make payments, penalties and interest will continue to accrue.
You have filed and paid your taxes on time every year, except this year as there was so much going on. The IRS will offer a one-time forgiveness of the Failure to File and Failure to Pay Penalties. To qualify, you cannot have had the same penalties within the last three filing years.
Taxes can be scary, but much less scary when a skilled professional is on your side. It’s time to call one in, so be sure they are knowledgeable in taxes and resolution options. Our staff are Enrolled Agents and Certified Tax Resolution Specialists. They have the knowledge it takes to negotiate your tax debt with the State and Federal tax authorities.
Our initial consultation is free and here we will talk about your case, your concerns and what you want in the end. We are here to listen and will not take your case if we feel you can go it alone, but we’ll be sure you have the knowledge needed.
Once you become a client, we will initiate contact with the IRS and State. We will follow-up on your case and find out how far along in the process you are currently. Has your case been assigned to a Revenue Agent or Officer? Are you in Collections and quick action must be taken to ensure a levy would not be placed?
Once we have the information needed, we will then complete a financial analysis of your current financial situation. We will present you with the information we have found and work together on what resolution options are available for your specific case. Sometimes it may not be exactly what you are hoping for, like not paying anything at all, but it will be a final resolution that will resolve your tax debt and give you a better night sleep without having to worry if you will have money in your bank account tomorrow.
Once you are in a resolution, we are always available to help with questions, where to make payments, due dates, etc. Once you become a client, we stay with you to the very end of your case.
Call us today for a free consultation. 800-829-7483. We look forward to helping you!