Having delinquent taxes can be nerve-wracking, but it’s important to remember you’re not alone. At Creative Tax Solutions, we understand that larger-than-expected tax liabilities can strain your finances and cause stress. Fortunately, the Internal Revenue Service (IRS) has established several programs and mechanisms you can use to manage and settle your tax debt. Today, we’ll explore a few popular tax payment options such as installment plans, offers in compromise, penalty abatement, and negotiating payment terms.
Delinquent Taxes: Causes, Notifications, Alternative Payments
Delinquent taxes are an unpleasant reality for many taxpayers, but understanding their genesis, the notification process and the right time to consider alternative payment options can make the journey less daunting.
What are Delinquent Taxes and How Do They Occur?
Delinquent taxes refer to any owed taxes that have not been paid by the deadline. The causes of delinquent taxes may vary. Some people might overlook the due date due to personal issues or forgetfulness, while others consciously decide to postpone payment because of financial struggles or uncertainty about the return.
Financial shortfalls can especially occur during economic downturns when people suffer job losses or significant reductions in income. In such cases, they may prioritize other bills or living expenses over tax payments. Furthermore, misunderstandings or a lack of knowledge about tax laws can also lead to errors in tax returns and potentially result in delinquent taxes.
The Delinquent Tax Notification Process
Upon processing your tax return, if the IRS finds that you owe money, their initial step is to send a “Notice and Demand for Payment.” This letter provides details of the due amount, including assessments of penalties and interest.
If the tax bill remains unpaid even after the initial notification, the IRS escalates its communication process. They start by imposing penalties and interest, which compound over time. Should these penalties and the initial amount remain unpaid, you’ll receive multiple reminder notices each increasing in urgency.
Finally, if all earlier attempts at contact fail, the IRS issues a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing,” primarily a last warning, 30 days prior to initiating a levy.
Best Time to Seek Alternative Tax Payment Options
The best time to seek alternative payment options is as soon as you realize you won’t be able to pay your taxes in full by the deadline. Proactivity here is key to avoiding the buildup of penalties and interest.
If your debt remains after the initial IRS notice, explore alternatives like payment plans or offers in compromise. A payment plan allows you to pay your tax debt over time, in multiple manageable payments, while an offer in compromise lets you settle your tax debt for less than what you originally owed.
Moreover, if you’re faced with significant penalties, you could consider penalty abatement. If you’re a first-time offender or have a “reasonable cause,” like a natural disaster, serious illness, or undue hardship, the IRS might accept your request for penalty relief.
Facing delinquent taxes can be intimidating, but remember, several strategies can help manage and pay off your tax debt. The essential aspect is to act swiftly to limit additional costs and utilize alternative payment options as soon as feasible.
Option 1: IRS Installment Plans
When faced with a seemingly insurmountable tax debt, your first port of call should be to consider an IRS installment plan, which allows you to spread your tax debts over several months or years. Setting up a payment plan with the IRS is a straightforward process, and it can help you clear your tax debt without imposing an unsustainable financial burden.
This option can be particularly effective for those who can afford to make regular tax payments but find it challenging to pay off their debts in a lump sum. By splitting the debt into manageable parts, you can pay off your tax debt bit by bit while minimizing financial hardship. Keep in mind that interest and penalties can continue to accrue until the full debt has been paid off.
Option 2: Offers In Compromise (OIC)
If your tax debt vastly exceeds your financial resources, an offer in compromise (OIC) might be your most attractive option. An OIC allows you to settle your tax debt for less than the full amount you owe. This can be an appealing choice if there is a genuine doubt about your ability to pay the full amount or if doing so might create financial hardship.
However, not everyone is eligible for an OIC, and the application process can be complex. At Creative Tax Solutions, we can help you determine whether an OIC is right for you and guide you through the application process. It’s also important to note that you must remain compliant with your tax filing and payment obligations while your OIC application is under review.
Option 3: Penalty Abatement
Penalties can accumulate quickly and can end up being a significant portion of your tax debt. If you have been fined by the IRS for the late payment or filing of taxes, you could consider petitioning for penalty abatement. The IRS may provide relief from penalties if you can demonstrate a reasonable cause for late payment or filing or if this is your first time incurring such a penalty.
We’ve helped many clients reduce their overall tax liability through penalty abatement applications, and we can leverage this experience to help you explore this option.
Option 4: Negotiating Payment Terms
If the options above don’t fit your circumstances, negotiation might be the answer. Contacting the IRS directly, or enlisting the help of tax professionals like us at Creative Tax Solutions, to negotiate new payment terms can lead to a more manageable tax payment plan.
Several conditions might impact any negotiations, such as the age of the debt or whether you disputed the amount in the past. But with professional representation, there’s a higher likelihood of securing a payment plan that suits your financial circumstances.
While having delinquent taxes can feel overwhelming, a range of options can effectively mitigate the situation. Whether it’s setting up an installment plan with the IRS, applying for an offer in compromise, requesting penalty abatement, or negotiating new payment terms, potential solutions exist.
At Creative Tax Solutions, we’re dedicated to helping you understand and navigate these possibilities. By leveraging our tax expertise, we aim to provide you with practical solutions and peace of mind. Reach out to us today to get personalized advice and solutions tailored to your specific situation.