Owing taxes to the IRS can put you under a lot of stress, and make you feel quite like you’re drowning, especially if you are finding it hard to pay off your liability. However, you do not need to be get disheartened as you have rights. As a matter of fact, the IRS has recently approved the new “Taxpayer Bill of Rights.” We’ve put together some tips for you to find your way safely out of debt.
Tax Tip #1
To avoid paying interest or penalty charges, you should try to pay off as much as possible of the amount of tax that you owe to the IRS. Once the IRS starts charging you fines, it’s extremely difficult to reverse them. Even if you cannot pay the full amount, pay as big a sum as you can, the interest charged is based on your unpaid liability!
Tax Tip #2
If you feel like you owe the IRS less than what they are saying, you can back up your claim by providing them with more information that proves your case, or if you need relief from the penalties you are being charged. You can only qualify for penalty relief if you are ill, or are serving actively in the military, among other pretty specific reasons.
If the IRS prepared your tax return – because yours was not filed on time, you are entitled to provide extra information. The IRS is not going to know all the possible deductions or credits you may be eligible for when it completes tax returns for individuals who have not filed their returns for a long period of time. Standard procedure means that the IRS will prepare your tax return using only the standard deductions, no dependency exemptions, no credits, and using “married filing separate” filing status for married taxpayers. When the IRS uses this process, you generally lose out. Your tax liability will be higher than if you completed the return yourself, and therefore you can provide the IRS with information that proves you are eligible for more tax breaks and credits, therefore lowering, or even canceling your liability completely.
Tax Tip #3
A repayment schedule can be negotiated with the IRS if you find yourself unable to pay off your liability, though you have to keep in mind that interest and penalties keep accruing during the repayment period. These charges are based on the liability you have yet to pay off, so the more you pay off, to begin with, the lower your penalties will be. Be aware that the IRS has zero tolerance for payments not made in a timely manner after a repayment agreement has been put into effect, they will see you as untrustworthy and late repayments will affect any future attempts to file for another repayment schedule.
Tax Tip #4
You may qualify for “Innocent Spouse Relief” if the reason for you owing taxes is a refusal to comply by your spouse. If your spouse did not declare a source of income, you can be eligible for this type of tax relief. Refer to the IRS Publication 972 and Form 885 for more information on this.
Tax Tip #5
Sometimes, it might save you money in the long run to hire a tax attorney or tax professional. You can refer to your state or local CPA society to find the most qualified representatives available to you. If you simply can’t afford this option, depending on your case, you can opt for a pro bono representative if they are willing to take your case. There are clinics that are independent of the IRS; Low Income Taxpayer Clinics that are funded by an IRS grant program and can help you with representation whether it is for an audit or just with issues on your individual, personal case.
As an end note, you should remember that federal and state taxes are different things, and while these tips will help you with your federal tax liability, they do not apply to state taxes. Each state’s tax system has its own regulations and rules so be sure to refer to these depending on which state you live in.
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