Can’t pay your outstanding tax bill? First, be sure you still file your tax return. Your ability to pay is a separate issue from the filing of the tax return and the IRS has extra costs you’ll incur for failure to file. The failure to file penalty can be as high as 25% of the tax you owe, so it’s important that you get your tax return filed and not let your liability snowball.
If you filed and owe the IRS, you should know about the IRS Fresh Start Program. Here are three of its features that offer a bit of relief for those struggling to pay their back taxes.
A tax lien has a negative effect on your credit score, and even after it’s removed, will appear on your credit report for 7 years. This can have a nasty consequence when you are looking to buy a new home, refinance an existing mortgage or take advantage of a new credit card offer. Although notices of Federal Tax Liens may still be filed on amounts less than $10,000, with Fresh Start, the amount you can owe before the IRS will file a tax lien has been increased from $5,000 to $10,000. If you already have a tax lien, you may be able to have the lien withdrawn by entering a direct debit installment agreement.
This option has been updated to make things a bit easier. You can request an installment plan by filing a Form 9465 with the IRS. You may use this form to request your payment plan for up to $50,000 owed, and may request the payments be spread out up to 72 months. You will still be paying both interest as well as a penalty, so you may wish to choose the fastest payoff time you can afford. Depending on your circumstances the IRS has discretion to reduce or waive penalties, so it’s in your best interest to have a dialog if you feel your circumstance might apply.
Offer in Compromise
The IRS will negotiate a settlement of your taxes owed if the offer is as much as they can reasonably expect to collect over the 6 years. They offer an on line tool, The Offer In Compromise Pre-Qualifier which asks you for details including amount owed, your assets, and current income.
Last, the IRS waived late filing penalties for those impacted by the explosion at the Boston Marathon or by the storms in the South and Midwest. The IRS did not waive interest due for both situations, only the penalties for late filing.
As this year draws to a close, it can’t hurt to start your planning now for your 2013 tax filing. A few manila folders is all you need to stay organized so when you sit down to file your taxes with TurboTax early next year, you’ll see how fast it is to file this year’s taxes and not worry about interest or penalties.