THE IRS is the worst creditor you can possibly have. It’s always bad news when you find out that you owe taxes, and it’s even worse when you don’t have the money to pay.
Some people erroneously believe that if they can’t pay what they expect to owe when they file their return, that they can just file for an extension and get more time. Wrong. While an extension does provide you some additional time to file your return, it doesn’t extend the deadline to pay what you owe. Let me explain.
First, if you don’t file your tax returns on time, you get hit with failure-to-file penalties. The penalty is 0.5% for each month that the tax is not fully paid. Second, the longer your taxes remain unpaid, interest on the amount will also continue to pile up. Currently, that interest is about 7% per year. So, the sooner that you pay, the less money that you need to fork out to pay your tax bill. Unfortunately, depending on how much you owe, you may require a long repayment plan that lasts for several years. That means a lot of your payments will go to penalties and interest, making it difficult for you to end your IRS nightmare sooner that you’d like.
The IRS offers several payment options. Usually, the IRS will ask you if you can pay within 120 days. If you cannot pay within that period, you can request an installment agreement. Your monthly payment will depend on your income and expenses, and you may need to submit a collection financial statement unless the amount owed is less than $10,000. Once your request is approved, you can always pay it off sooner. But going forward, you need to remain compliant as long as the agreement is in effect. That means you need to file your tax returns in a timely manner and that you can’t have another tax bill going forward that you can’t pay. Otherwise, the IRS will cancel your original agreement and you will need to re-negotiate a new installment agreement.
If you qualify for tax debt forgiveness, you can reduce your tax debt significantly. This is called an “Offer in Compromise” where the IRS, believing that you will never be able to pay the entire amount based on your income and assets, agrees to take what you can afford and cancels the rest of your tax liability. Before applying, the IRS requires that you have filed all your tax returns and so if you have any years where you did not file a return, you need to file those first before the IRS will even talk to you.
Some people will sell assets, borrow money, dip into their retirement plans, etc. just to get their taxes paid off quickly because they don’t want to deal with tax liens, bank levies, or wage garnishments by the IRS. While it is a good idea to get the IRS out of your life as soon as you can, some of these options are not necessarily the best. For example, if you tap into your retirement plans to pay the IRS, you may incur tax penalties for early withdrawal on top of the taxes that will be due next year on the amount you are withdrawing (i.e., pre-tax money). In other words, you are simply robbing Peter to pay Paul by exchanging one tax bill for another.
If you owe the IRS, the State, EDD or State Board of Equalization, my office can help you find the best solution to resolve your tax liability. You will never have to speak with the IRS again. I will review your case and help you make the best decision for yourself and your family.
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The opinions, beliefs and viewpoints expressed by the author do not necessarily reflect the opinions, beliefs and viewpoints of the Asian Journal, its management, editorial board and staff.
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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray J. Bulaon has successfully helped over 6,000 clients in getting out of debt. For a free attorney evaluation of your situation, please call RJB Law Offices at TOLL FREE 1-866-471-8272. (Advertising Supplement)