Seven million Americans miss the tax deadline every year, while others file tax returns on time but realize that they owe more than they can pay. It happens. While the Internal Revenue Service is very interested in collecting outstanding taxes, they're also willing to work with small business owners who might have fallen a bit behind in their taxes.
There are many tax resolution and tax relief services and programs designed to help individuals and small businesses handle their tax debt with the IRS. After all, the IRS's goal is to collect the money you owe—not punish you until you're forced out of business.
Running a small business can be overwhelming at times, and sometimes things get overlooked. Rather than panic when you realize you haven't filed taxes or you can't pay your tax debt, relax. You and the IRS share a common goal: getting your taxes sorted out and back on track.
There are many reasons why you might have fallen behind on your taxes. You might have been filing incorrectly, suffered financial hardship, or perhaps your own bookkeeping has gotten a bit unorganized, making it hard to figure out how much you owe the IRS. And while many small businesses make estimated payments throughout the year, the calculations must be exact at filing time.
When the IRS contacts you regarding back taxes, they often send a tax bill for what they think you owe. Still, they aren't privy to your bookkeeping system, so their calculations may be incorrect—especially if you qualify for any small business tax deductions or tax credits to help lower your total bill. When sorting out your tax debt, your first step is figuring out how much you actually owe the IRS, and that requires accurate bookkeeping.
With accurate books, you know how much you made, how much you spent in the process of making money, and how those numbers translate into deductions and tax credits.
In 2011, the IRS started a new initiative called the IRS Fresh Start program. The Fresh Start tax relief program's goal is simple—to help taxpayers with tax debt get back in good standing with the IRS.
As part of the Fresh Start program, there are four different IRS options for those with a significant tax burden. Of course, not every program is a match for every tax situation, but if you do find a program that works for your business, working directly with a trusted financial professional, like a tax attorney, is often the fastest and safest way to resolve back tax debt.
An installment agreement is essentially a payment plan you set up with the IRS to handle back taxes, or taxes you owe. Installment agreements are designed to give you more time to pay accumulated unpaid taxes and penalties, and taxpayers have two options: plans that will get you current on your taxes within 80 days, or one that extends beyond 80 days.
You can apply online for both types of payment plans. It's free to apply for a shorter repayment plan, but application fees do apply for long-term payment plans. If you apply online through irs.gov, applications cost $31, while you can expect to pay $107 for a phone, mail, or in-person application.
If you plan to make your monthly payments by a method other than automatic withdrawals, you can expect to pay $149 to apply online or $225 to apply by phone, mail, or in person. If you want to set up IRS installment payments and owe more than $25,000, you will only be eligible for automatic withdrawals from a bank account.
While an IRS installment plan can be a huge help for managing your tax debt, it is important to note that installment plans do not stop interest or penalties for late payments on tax debts. Those will continue to accumulate until your balance is paid in full.
An Offer in Compromise is essentially a counteroffer you make to the IRS to settle your account. If the IRS accepts your offer, you may be able to pay less than the amount you owe in back taxes. However, it's important to note that the IRS is much more willing to accept a payment plan than an offer for less than you owe.
Proving your eligibility for this option can be challenging. Fewer than half of all Offer in Compromise requests are accepted by the IRS, and you will need to prove that paying your total debt is impossible or creates a financial hardship.
You can only apply for an Offer in Compromise if you meet specific requirements:
If you can't afford to pay your taxes while covering your living expenses, you may ask the IRS to declare your back taxes as "Currently Non-Collectible." You will need to prove your financial situation, and then the IRS will delay repayment of your tax debt for a period of time.
However, this is not an IRS tax forgiveness plan or tax exemption plan. Your back taxes don't go away, and the IRS expects you to resolve your tax obligation when your financial situation improves. In addition, the IRS will review your tax situation annually, and they can file a tax lien against you while they wait for future payment.
When the IRS doesn't receive tax payments by the due date, penalties and fees automatically start to accrue. These are calculations based on estimates and algorithms, and in some cases, the IRS is willing to reduce or remove these penalties.
A penalty abatement letter is sent to the IRS explaining why your taxes are arriving after the tax deadline and asking that the penalties be removed. However, you will need to demonstrate reasonable cause for the late payment, such as natural disasters, fire, a loss of records, or a death or serious illness in the family. The IRS will expect you to provide evidence of the cause, including hospital records or documentation of natural disasters.
To take advantage of the IRS tax forgiveness or relief programs, you must have filed all required federal tax returns. You can't ask for tax help again from the IRS until you've told them—via tax forms—exactly how much you owe them.
While the IRS does offer options for small business owners looking to catch up on overdue taxes, navigating those choices can feel overwhelming. In addition, each year, the IRS rejects many Fresh Start program applications due to incorrect or incomplete forms.
That's why many people find it helpful to work with a tax professional as they navigate the process. The right CPA, accountant, tax attorney, or Enrolled Agent can help you determine which program is right for your tax relief situation or if you need to pursue other options.
If you don't qualify for IRS tax relief programs or need extra help, you may want to seek support from a tax debt help company, or tax relief company. While there are companies that can help, many others take advantage of individuals or small businesses looking for relief.
If you're already working With Accracy on getting your past, present, and future records in shape, you're in luck. We have a referral network of trusted tax relief companies that may be able to help you sort out your small business taxes. The tax attorneys companies we work with are heavily vetted to be sure they provide the highest quality tax relief.
Tax debt can be a major source of stress, and unfortunately, many companies will prey on individuals and businesses in sticky situations with the IRS. Rather than helping you, these companies are more interested in improving their own bottom line and can leave you in a worse position than when you enlisted their help.
If you're considering working with an IRS debt relief company, here are some red flags to watch out for:
You would have a hard time finding business owners who enjoy dealing with the IRS, especially when they are in a position of owing tax debt. When you realize that things have gotten a bit sideways with the IRS, it can be disconcerting at best, and at worst, terrifying.
Fortunately, tax debt with the IRS is a problem that can be resolved, even if the bill winds up a bit more than you can pay now. And best of all, once you've taken the time to get your past bookkeeping and tax issues, returns and payments under control, you'll be in an excellent position to stay on top of your financial obligations to the IRS moving forward.
We are offering free 1 Month Basic Bookkeeping to all new customers so you can experience Accracy's seemless and professional services.
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