By Dalia Ramirez | NerdWallet
For some, the brand new tax season may function a traumatic reminder of previous taxes which have but to be filed and paid. Taxpayers owed over $120 billion in again taxes, penalties and curiosity in 2022, in accordance with the IRS. And there quickly could also be extra concrete reminders coming: The IRS resumed sending automated assortment notices for unpaid taxes in 2024 after pausing them “due to the unprecedented effects of the COVID-19 pandemic” in February 2022.
If you’re one of many many taxpayers who owe tax debt this season, addressing the problem sooner moderately than later can prevent from penalties, curiosity and different extra critical penalties. And you may get began even in case you can’t afford to pay in full. Here’s what you are able to do to get again on observe.
If you get a discover, learn it
The longer you delay studying and responding to unpaid tax notices, the extra critical your tax state of affairs might change into.
“People come into our office, and they have all these unopened letters,” says Kenneth Portera, an enrolled agent and proprietor of Kenneth Portera and Associates in New Jersey who works with purchasers who owe again taxes. He needs individuals would open these notices after they arrive, he notes. “If you do get a letter, open it up and find out what’s going on.”
If you proceed to disregard notices, the IRS could resort to extreme measures, together with tax liens, wage garnishment, asset seizure and passport restrictions. And in case you owe state taxes, you can face extra collections and garnishments.
However, the IRS and state tax companies will all the time attempt to contact you earlier than escalating to extra excessive measures. If you present the company that you simply’re keen to pay — even when it’s not the complete quantity — you’ll be able to keep away from the worst outcomes.
Set up a fee plan
Most taxpayers can arrange short- or long-term fee plans, together with installment agreements, by means of the IRS web site. To apply for one on-line, you need to owe lower than $50,000 in mixed tax, penalties and curiosity for a long-term plan or lower than $100,000 for a short-term plan. The company waives setup charges for low-income taxpayers and has choices for companies, too.
Once you contact the IRS and arrange a plan, the federal government will cease sending notices about your tax debt as a result of assortment has already been completed, Portera says.
If you’ve got an present fee plan, you’ll be able to replace it to account for this 12 months’s taxes.
Contact a professional
Not everybody with overdue taxes wants a tax lawyer. But in case you’re coping with tax authorities, owe giant quantities of cash or have a tax state of affairs that you simply really feel unable to deal with by yourself, Portera recommends enlisting the assistance of a licensed tax skilled, resembling an authorized public accountant, enrolled agent or tax lawyer.
When you don’t file your return, the IRS places collectively a substitute return for you with a proposed evaluation of what you owe. This tax return the IRS information for you is “almost always going to be not in your favor,” says Robert Persichitte, a CPA at Delagify Financial in Colorado who has expertise working with purchasers in pressing tax conditions.
According to Persichitte, some tax preparers will have a look at your substitute return without cost and inform you if it must be amended. Sometimes, a licensed tax skilled can negotiate with the IRS to scale back the quantity you owe. In critical circumstances, they could allow you to apply for a proposal in compromise, an settlement with the IRS that settles your tax legal responsibility at a decrease quantity.
Remember, although, that tax reduction isn’t normally a fast repair — and guarantees of a dramatic lower to your tax debt could also be a rip-off.
“If it sounds too good to be true, guess what? It usually is,” Portera says. The course of for negotiating a decreased tax invoice is sophisticated, he notes. If a tax reduction firm can’t ship and fumbles communications, he provides, it might lead to extra curiosity and penalties for you, and no decision.
For low-cost choices, contact the Taxpayer Advocate Service or your native Low Income Taxpayer Clinic, which supplies free or low-cost help for low-income taxpayers.
Don’t neglect about present tax returns
When taking good care of overdue taxes, don’t neglect to file taxes for 2023.
Even when you have overdue penalties — or don’t have the funds to pay this 12 months’s charges in full — keep compliant with the IRS by submitting your returns yearly. The company is more likely to waive your penalties and even agree to scale back your tax debt when you have a historical past of compliance.
Claire Tsosie, an assigning editor at NerdWallet, contributed reporting to this text.
This article was written by NerdWallet and was initially revealed by The Associated Press.