How To End Your Tax Debt This Year-End
As we approach the end of the year, it’s time once again to begin preparations for Hanukkah. That’s just the fun part of the year-end, though. It’s also time to start worrying about gathering all of your yearly financial information to turn over to your tax preparer. Some people put off this yearly ritual for as long as possible, but that’s hardly advisable.
This is especially true if you have a history of tax issues. You may have heard that IRS tax enforcement is weaker than ever, enfeebled by a decade of cuts and a looming massive additional budget reduction. While it’s true that the IRS only examined 0.7% of individual returns last year, there’s more for taxpayers to worry about. The fact is that since the IRS is conducting fewer audits, they’re also being far less lenient towards those that they find not in compliance.
The Tax Gap and You
Most taxpayers try not to think about the IRS when they can avoid it, but some background information may be illuminating. As of 2010 (the last time data was released), the IRS estimates that only 81.7% of taxpayers voluntarily comply with the U.S. tax code. This leads to a shortfall in collections of approximately $458 billion per year. This number represents the difference between the total amount owed and what is actually collected and is referred to as the tax gap.
It’s a staggering number that accounts for most of the federal government’s annual budget shortfall. It also guarantees that the IRS won’t be going easy on taxpayers no matter how much their budget shrinks. They continue to spend the bulk of the money they do have on enforcement and are cutting taxpayer assistance services instead. This means that anyone that they do target for enforcement had better be prepared to pay.
I Owe Back Taxes, Now What?
Even though the IRS is working harder than ever to squeeze every dollar they can from anyone that they find to be not in compliance with the tax code, they do realize it’s not always possible in every case. If you do owe them money, they won’t do you any favors, but there are some things you can do to get out from under a burdensome IRS debt.
The first step is for you to make sure that you’ve filed appropriately, including all previous years. The IRS won’t even begin to negotiate with you until you do. Next, you’ll need to contact them as soon as you possibly can to discuss your situation. Every moment you wait means fewer options and more late fees. Depending on your situation, you may attempt to get the IRS to agree to:
- Payment Agreements – The terms will vary based on your financial situation and your means to pay.
- Penalty Abatement – The IRS may waive penalties if you can demonstrate good cause for having become delinquent.
- Offer In Compromise – An agreement where the IRS allows you to settle your outstanding tax debt for less than the original amount.
- Currently Not Collectible Status – If your financial situation is dire, the IRS may suspend all collection activity until your finances improve.
Waiting is Not an Option
Nobody likes to deal with the IRS, but much like visiting a dentist, the pain will only get worse with any delay. It’s very easy to have a tax debt snowball into a financial catastrophe in short order. That’s why time is your enemy whenever an IRS bill comes due. Most of the time, individuals can find at least some relief through the options mentioned here. If your debt is particularly large, it’s also best to seek professional help to get resolution. As the saying goes, “In this world, nothing can be said to be certain except death and taxes.”, so avoidance will never be a possibility.