What to Do If You Owe Taxes And Don’t Have Money to Pay Them

July 10, 2012 by  Filed under: Taxes 

There could be a situation in life when events occur beyond your control and make it impossible to pay your taxes on time. The IRS tax liability increases rapidly due to the interest and penalties that accrue on top of the tax due portion. Sending money to reduce the balance on the tax debt is the wrong approach if that means you’re unable to cover your current tax obligations. The IRS keeps sending you one notice after another until a Revenue Officer appears at your door.

What is the best way to deal with a situation like that? The most important thing to do, according to the IRS, is to become current and compliant from this point forward. It means you should file all tax returns that are not filed and start making all required payments on your current obligations in a timely manner. If you have personal income tax liability, make sure you make a payment for the current year 1040 Income Tax return. If this is your business tax, ensure that all tax deposits or estimated tax payments for the current quarter are paid.

Forget about your past due taxes for a moment and concentrate on what needs to be done today. This is very important, because, before considering a taxpayer’s request to set up a payment plan agreement for back taxes, the Internal Revenue Service looks into the compliance history of that taxpayer. The Internal Revenue Service usually wants to see that the taxpayer has stopped falling behind before agreeing to negotiate a resolution for the outstanding taxes.

Once you have the situation under control, you can request a payment plan, an Offer in Compromise, or any other agreement to settle your debt with the IRS. It may take some time for the IRS to review your financial situation and your proposal. Now is the best time to start making payments towards your tax debt. You can send voluntary payments to the IRS in addition to your regular tax payment or deposits, while the Internal Revenue Service is reviewing your Installment Agreement proposal.

However, if you want these payments to really reduce your balance, you need to make sure that they are applied to the tax portion of your liability. Just a note on your check indicating the tax form and tax period you are sending a payment for and the words “to be applied to the tax portion only” will be sufficient. Otherwise the IRS will automatically apply it to the penalty and interest, which will accumulate again by the time you make your next payment. It is also a good idea to keep a copy of each cancelled check to the IRS and your mail delivery verification when you make your payments.

After your agreement with the IRS is finalized, you will receive a letter from the IRS to notify you about that decision. This letter will have the amount of your required monthly payments. It is very important to make these payments on time and to keep proof of each payment that was made. In addition, you have to make sure that all tax returns are filed and paid in a timely manner from now on.

This guest post was provided by Ian Jackson, a tax professional who writes for one of the premier tax resolution companies. Find out more at 20/20 Tax Debt Help.

Article Source:
http://EzineArticles.com/?expert=Ian_K._Jackson

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!


You must be logged in to post a comment.

Prev Post:
Next Post: