(Newswire.net — September 3, 2020) — Over 14 million Americans owed the IRS $131 billion in back taxes as of 2018.
If you’re one of them, you’ve probably received a number of letters from the IRS reminding you of your tax obligation. You can’t let the situation get out of hand, because the IRS has the legal authority to seize your bank accounts, personal property, and your income to pay your back taxes.
You need to find a tax resolution as soon as possible. Fortunately, there are 5 ways to manage your back taxes. Keep reading to find out what they are and learn how you can manage your taxes going forward.
1. Check the Statute of Limitations
The IRS has a certain amount of time to collect a tax debt. This is the statute of limitations, and it generally runs for 10 years after the tax amount was assessed by the IRS.
This doesn’t necessarily mean from the time that you filed your taxes or the tax year you filed. Let’s say that you didn’t file your 2013 taxes until 2015. The statute of limitations doesn’t expire in 2020 for your back taxes.
Since the taxes owed weren’t assessed until 2015, the statute of limitations will run until 2025.
If you put a hold on tax collections through a deferment or non-collectible status, the clock on the statute of limitations will stop as well.
Let’s say that the statute of limitations was due to expire in February 2021. You had your back taxes put in non-collectible status for 6 months. The statute of limitations will then expire in August 2021.
This is important to understand because you may be able to use the statute of limitations to your advantage. If you try to do that, be sure to get the help of a tax professional.
2. Installment Payments
If you want to take care of your back taxes, you need to contact the IRS as soon as possible. The more you ignore the letters, the worse the situation will get.
You can set up an installment plan, which lets you pay off your back taxes, penalties, and interest in regular monthly withdrawals.
Be prepared to spend a lot of time on the phone trying to get through to someone. If you don’t want to spend hours on the phone, make an appointment at a Taxpayer Assistance office. You can set up a payment plan there or go online.
3. Enter Not Collectible Status
There are many reasons why you might owe back taxes. If you suffered financial hardship, such as a job loss, you can get a break from the IRS collections process.
Not collectible status means that the IRS agrees to place a hold on any collections activity for 6-12 months. This gives you the opportunity to get back on your feet without the IRS threatening to put a levy or lien on your property.
Remember that this will affect the statute of limitations, but this can be a great option if you need it.
4. Partial Payments
Partial payments are similar to installment payments. The key difference is that you pay as much as you can upfront, and then pay the rest in monthly installment payments.
This is a good option if you do have some cash set aside. You can use that to pay off your back taxes and then agree to a monthly installment arrangement with the IRS.
This can help you come to a tax resolution faster than just going on an installment plan.
5. Submit an Offer in Compromise
You’ve probably seen those tempting commercials to settle your taxes for “pennies on the dollar.” What those commercials are talking about is an offer in compromise. This is part of the IRS Fresh Start Program.
An offer in compromise that lets you settle your tax debt for less than the amount owed. It’s not as simple as it seems, since there’s a 20-page application form that has to be filled out.
The application goes over your financial situation and at the end of the application, you make an offer to pay a certain amount of money over the next 6 months.
In order to qualify, you do need to be up to date on filing your taxes. You do want to get help with an offer in compromise because many applications are rejected.
Tax Planning Tips
The best way to manage back taxes is to avoid owing money to the IRS. That doesn’t mean skipping out on your tax obligations, but rather managing your finances in a way that helps you plan for taxes.
Tax planning isn’t something you do when you get your paperwork together to file taxes. It’s something that you need to do regularly. Tax laws and your financial situation can change during the year, which will change how much you owe.
Here are some tips to manage your taxes during the year.
Check Your Investments
If you’re getting ready to cash out an insurance policy or 401(k), you need to know how that will impact your taxes. For example, annuities are taxed differently for qualified and non-qualified annuities.
Knowing your obligations will make tax planning easier. You can also use this knowledge to be more strategic in finding a tax resolution that helps you keep more wealth.
Check Your Profit and Loss Statements
Self-employed people have it rough when it comes to taxes. They pay more in self-employment taxes and they have irregular income. That can lead to a large tax bill that you’re unable to pay.
You want to review your profit and loss statements every month to make sure that you’re paying the right amount of taxes on your business income.
Find Tax Resolution with Your Back Taxes
Figuring out how to pay back taxes is stressful. You need to know that the IRS has options to help you find a tax resolution, such as installment payments and offers in compromise.
You need to take the first step and reach out to tax resolution services or the IRS to manage your situation. You can’t ignore it, because that will lead to more issues.
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