Whenever I talk to someone about being in the tax and accounting industry, I always expect at least one question or comment about the $80 Million increase in funding for the Internal Revenue Service (IRS) or the "87,000 new IRS Agents" that were supposedly being hired as a result of the Inflation Reduction Act. And although that myth was busted some time ago, the buzz surrounding what an "Army of Armed IRS Agents" could mean for taxpayers still lives on.
Those comments and the conversations I often have about tax debt issues remind me exactly why I started Exclusive Tax & Financial Services instead of continuing on my original career path in corporate accounting. The bottom line is that tax season can be a challenging time for individuals and businesses. Furthermore, tax issues are prevalent and happen to millions yearly. Thankfully, understanding and taking the next steps to relieve tax problems is possible. So, although stressing about the issue or even wholly avoiding it altogether may seem like the reasonable solution when you receive a debt notice, I challenge you to reach out to a qualified tax relief expert like me or even conduct your research to see what options may be available to assist you. But to implement the most effective tax negotiation strategies, you must first understand the challenge you are facing.
Facing Reality: Common Tax Debt Issues Taxpayers Encounter
Unpaid Taxes/Back Taxes
Back taxes are the money you owe to the IRS or State from the previous years. Taxpayers encounter back tax issues for several reasons, including not taking enough taxes out of their paychecks during the year or not paying the total amount owed when their tax return is filed.
IRS Penalties and Interest
The IRS or State entities can assess several types of penalties against taxpayers for problems with their taxes. Some of the most common penalties are Failure to File, Failure to Pay, Accuracy Related Penalties and Underpayment of Estimated Taxes. The reason for the penalty, the minimum and maximum amount that can be assessed, and the way the penalty amount is calculated can vary. However, the most important thing to note about these penalties is that multiple penalties can be assessed simultaneously, AND interest will be accrued in addition to the taxes owed and penalties assessed.
Wage Garnishments
Did you know that when a taxpayer has an outstanding tax obligation that has not been taken care of, the IRS and State entities have the authority to order your employer to withhold a portion of your wages each paycheck until the outstanding obligation has been paid in full? Wage garnishment orders can result in a substantial amount of your wages being taken. They can ultimately cause or add financial strain on the individuals facing these issues.
Bank Levies
Another action that the IRS or State authorities have the power to take against taxpayers who have not satisfied an outstanding tax obligation is seizing funds directly from a taxpayer's bank account(s) until the debt has been satisfied. This means that in the same way they have the authority to send an order to your employer to take a portion of your paycheck, they can also send a similar order to your bank to collect the amounts owed directly from your account.
Payroll Tax Issues
Taxpayers can encounter many payroll tax challenges that may result in an outstanding tax obligation to the IRS or State authority. Some examples are employers not paying or making timely deposits of payroll taxes (income tax, social security, Medicare), not filing the proper payroll tax returns, and even incorrectly classifying individuals who work for you.
Road to Recovery: Expert Solutions to Alleviate Your Tax Burdens
Installment Agreement
Sometimes the best option for the settlement of a tax obligation is to work with the taxing authority to pay the debt in monthly installments. With this solution, there may still be factors that can be negotiated to improve the terms of the agreement. This can include approval for extended time frames to make the installments or even negotiating a payment amount that allows you to satisfy the tax debt promptly while avoiding financial strain on you and your family.
Penalty Abatement
Although penalties may be assessed due to your particular tax debt challenge, under certain circumstances, you could receive approval to waive the penalties. Because some penalties can equal up to 25% of the outstanding tax amount, obtaining a waiver of this portion of the debt can substantially affect individuals seeking tax settlement options.
Offer in Compromise
This option is an actual tax settlement agreement allowing the taxpayer to pay less than the outstanding amount owed to fully settle the debt with the relevant tax authority. To receive consideration for this option, the taxpayer must show that financial hardship will prevent the full collectability of the debt.
Temporary Hardship Options
As we all know, life can throw us curve balls at any moment. Those unexpected life changes often lead to some impact on your financial circumstances as a result. Even if you originally planned on satisfying your tax obligation in full but encountered a financial hardship along the way, options such as Currently Not Collectible status allow the IRS or State Authority to temporarily suspend collection activities until your financial situation improves.
Tax Relief Options for Spouses
Although you may have agreed to "for better or for worse," we understand that you may not have known that the" for worse" included accepting joint responsibility for your partner's tax debt issues. That is why there may be options available such as Injured Spouse Relief and Innocent Spouse Relief, to protect you from tax liabilities resulting from your spouse's (or former spouse's) current or pre-existing actions or omissions.
The bottom line is that although the most effective way to avoid trouble with the IRS and State Tax Authorities is to take care of your tax obligations on time and in full, there will always be the possibility of simple mistakes or life circumstances that prevent someone from doing so. And although many believe that that they require the help of a tax attorney to assistant them with tax debt resolution, there are other licensed professionals like me who are given the representation rights to provide tax debt assistance that many taxpayers need when faced with challenges from the IRS and the States.
So, whether you are reading this looking to partner with a professional that will help you maintain compliance and avoid problems with the IRS or if you are someone who has already encountered tax debt challenges and is seeking professional assistance with understanding what options are available to you, reach out to us at Exclusive Tax & Financial Services for help.