If you have been wondering “How much do I owe the IRS?” it may be a matter of a simple calculation using an IRS form, or it may require the services of a professional tax company. The IRS tax code is complicated and changes each year can make determining your tax obligations difficult. Community Tax is a three-tiered tax service, offering tax resolution, tax preparation and bookkeeping services all under one roof. Our tax team has the expertise and experience to work with you to determine what you owe.
What Should I Do If I Think I Owe the IRS Money?
Many taxpayers who owe back taxes wonder how much they owe to the federal government, because of interest and penalties that begin to accrue when they have not paid or filed. Others may owe more because of a new life circumstance like marriage, deaths, new jobs, divorce or inheritances. There are a variety of life events that can affect your tax liability.
The first task is to make sure you truly owe the IRS the money. Read your completed return and look for any errors you may have inadvertently made, whether it be that you forgot to add a deduction, or you added the same income twice. If you expected to receive a credit or qualify for a deduction and you didn’t, be sure that you answer all of your questions correctly.
You can also contact the IRS on the phone, or do so in person through a local IRS office. You’ll need to have your Social Security number and personal information with you. You can then ask whether there’s a balance owed on your tax account for any previous filing periods. The representative should be able to tell you whether you have an outstanding balance, and will be able to tell you how many different assessments you may owe. Many taxpayers are uncomfortable contacting the IRS, or have no idea where to start when it comes to settling their tax debt. Community Tax can handle all interactions with the government agency and help you prepare tax returns for both the current year and any previous year in which you didn’t file.
The Cardinal Rule: Always File Your Taxes
The most important thing to do as a taxpayer, whether you can afford your tax liability or not, is to file your taxes on time. Even if you know you won’t be able to pay it off immediately, simply filing will save you hundreds and even thousands of dollars by minimizing tax penalties. There are failure-to-file penalties and failure-to-pay penalties that become more severe as time goes on, so this is an essential first step in the process of relieving your tax debt.
In general failure-to-file penalties are steeper than failure-to-pay penalties. A failure-to-file penalty is usually set at 5 percent of your tax debt for each month they go unpaid, but this penalty cannot exceed 25 percent of your total tax debt. In contrast, a failure-to-pay penalty is usually set at .5 or 1 percent of your unpaid taxes for each month, which also cannot exceed 25 percent of your total tax debt.
If you have already been penalized for failing to file or pay, you may qualify for relief under the First Time Penalty Abatement (FTA) policy. To qualify, the following must be true:
- You’ve already paid or arranged to pay any tax due.
- You didn’t previously need to file a return, or you’ve had no penalties during the three years prior to the tax year in which you received a penalty.
- You’re in compliance with all payment and filing requirements.
An FTA can only be claimed for a single tax period. It allows typically compliant taxpayers to request the abatement or removal of certain penalties. This can see a taxpayer saving hundreds and even thousands of dollars. Many taxpayers who may qualify for an FTA fail to do so, if only because they don’t understand how it works—or don’t even know that it exists. Community Tax can help you determine if the FTA applies to your situation.
If you believe you owe the IRS, keep a close eye on your incoming mail. The IRS sends numerous notices to delinquent taxpayers; with each subsequent notice, the consequences increase in severity. The IRS will send notices for the following reasons:
- You have an outstanding balance
- You are due for a refund from the IRS
- They have a question about your return
- They amended your return
- There are delays in processing your return
Receiving a notice from the IRS can be intimidating, but avoid the urge to ignore these letters. Each contains valuable information, and waiting to take action can result in longstanding financial consequences. The sooner you respond, the sooner you’ll be able to minimize any interest and penalty charges incurred from your outstanding tax debt. Each IRS notice lists a number to contact at the top right corner; call the number provided. The IRS is more willing to work with taxpayers that are proactive about getting their debt settled.
What Types of IRS Notices Are There?
Every year, the IRS sends out more than 200 million notices to taxpayers that serve a variety of purposes. With over 1,000 different types of IRS notices, there’s a letter for everything; some may request additional information for a tax filing document, some may seek overdue payment, and some may inform you of an audit on your account. There are two main factions of IRS notice that should never be ignored when it comes to tax debt, and these include: the IRS Statutory Notice of Deficiency, and Final Notice of Intent to Levy.
IRS Statutory Notice of Deficiency: If you receive a CP3219 or LT3219 notice, the IRS is notifying you that you owe additional taxes on a tax return. This may mean they’ve performed an audit, your tax return doesn’t match taxable income information the IRS has received from other parties, or they’re performing an unfiled return investigation. Before receiving this notice, you’ve been sent multiple notices explaining any additional taxes the IRS believes you owe. This is essentially your “last chance” notice. You have 90 days to either protest the additional taxes or pay the tax owed.
Final Notice of Intent to Levy: If you’ve ignored previous notices and refused to get in contact with the IRS about settling your debt, you’ll receive a Final Notice of Intent to Levy. This means your case has been transferred to the IRS Collection Unit, who now have the authority to enforce collection through a lie or levy. You’ll never receive a Final Notice of Intent to Levy out of the blue; the IRS sends out numerous letters beforehand that request you pay your bill or make an installment plan with the IRS. After this certified notice is sent, you have 30 days to create a payment plan with the government agency, or be subject to a levy. A tax levy can see the IRS seizing funds from your paycheck, in what is known as a wage garnishment, or taking the funds directly from your bank account.
What If I Ignore IRS Notices?
Ignoring the IRS’s attempts to collect what they’re owed can result in some pretty harrowing consequences, including the previously mentioned tax levies and liens. Ignoring an IRS notice can cause both immediate and long-term issues.
- Substitute for Return: If you fail to file and ignore the IRS’s requests to do so, they may file a substitute for return. This takes the place of a regular tax return, and sees the IRS calculating your taxes for you, based upon your previous tax returns. This means you have no control over the deductions and credits given, and could see you spending way more.
- A Visit from the IRS: The IRS may send a tax revenue officer to your home. During these visits, they’ll ask you about your money situation and outline the various consequences you can expect should you choose to ignore your tax debt.
- Wage Garnishment: This tax lien sees the government taking a portion of your paycheck each pay period in order to start paying off your tax debt.
- Asset Seizure: There are some cases in which the IRS will seize personal assets to cover the cost of your tax debt. The IRS can seize virtually any personal asset, including your home, cars, boats, and other valuables; they will sell these items in order to repay your tax bill.
- Criminal Charges: Although rare and usually only applicable in cases of fraud, delinquent taxpayers could face criminal charges for tax evasion. This can result in jail time.
What If I Can’t Pay What I Owe the IRS?
If you find yourself unable to pay your tax liability in full or on-time, there are a few options to consider. It’s always better to get in contact with the IRS and come up with an installment plan as quickly as possible. This will help you avoid hefty penalties and increasing interest charges, and may help you avoid more serious consequences such as a tax lien or levy.
A Short-Term Extension: If you can’t pay your tax debt immediately, you can consider a short-term extension to pay which provides you with 120 extra days to pay off all of your taxes.
Installment Agreements: If you won’t be able to come up with the necessary funds right away, you may consider applying for an installment agreement. Taxpayers who owe less than $50,000 or less qualify for this type of monthly installment plan. Once approved, you can pay through a direct debit option, which is the least costly of the options offered by the IRS.
Offer in Compromise: Taxpayers who will never be able to pay off their tax debt in full without undue hardship may qualify for an offer in compromise. Should your request be accepted, the IRS will forgive a portion of your debt, letting you settle for less than the full amount you owe. These are hard to qualify for, but our team of professionals can help increase the likelihood of qualifying.
The Community Tax resolution and tax preparation team assists customers with their income tax debts and tax returns. Never wonder “How much do I owe the IRS?” again, because our team will work with you each year to ensure that your returns are done correctly and on time every year. Our tax resolution team will conduct a thorough investigation of your finances and tax history. They will uncover what, if any, back taxes or unfiled returns are outstanding and determine the best course of action to completely resolve your problems with the IRS.
If you can’t pay your tax debt back in full immediately, there are options. Our team can help you assess which route is best for your individual circumstances. Some taxpayers find it more beneficial to place their IRS debt on a credit card to take advantage of lower interest rates, while others must pursue individual payment plans with the government agency to help decrease the penalties accrued with a delinquent account. Whether that be through an installment agreement that provides a manageable monthly payment plan, offer in compromise request, or debt forgiveness plan, Community Tax can help you determine what you owe and how to pay it.
How Can Community Tax Help Me?
If you owe the IRS money and you’re looking for ways to settle your debt, let us help. You can work directly with a professional team of tax attorneys, CPA’s and enrolled agents who have years of experience helping taxpayers across the country with their income taxes, tax debts and bookkeeping needs. From tax form questions to issues about self-employment tax returns, our team of dedicated tax professionals are prepared to help you settle your tax debt. If you are wondering “How much do I owe the IRS?” and you don’t know where to start, call us today at 1-888-676-4319 and get a FREE consultation about your needs.