2021 Tax Filing Season Kickoff and What to Do If You Can’t Pay Off the Taxes
As we enter the tax return filing season of 2021, there are several things to be aware of, as well as necessary actions to take if you can’t pay off the taxes you owe.
First of all, why was the 2021 tax return filing season delayed? The IRS began accepting tax returns on February 12, instead of the usual time of January. The reason is that the IRS still has a backlog of 6.9 million individual and business tax returns from the last filing season. Additionally, the IRS needs to work on sending out another set of stimulus checks. With these factors blocking the processing flow, the IRS postponed the starting date of the 2021 filing season. However, the due date remains the same—April 15.
With numerous changes caused by a new Tax Act enactment on December 27, 2020, there are a few things to note when you file your 2020 tax return.
If you didn’t receive stimulus checks or if you think you received less than you qualify for, you must claim the Recovery Rebate Credit when you file your 2020 tax return. Even if you aren’t required to file a tax return, you must file a tax return to claim the credit.
Another update is that self-employed individuals can now claim their sick & family leave tax credits caused by COVID-19 on the new IRS Form 7202.
What to Do If You Can’t Pay Off the Taxes
With the impact of Covid-19 still spiraling in place, it’s important to take action now if you have taxes you can’t pay off. You must seek to resolve your tax problems as soon as you can, before penalties and interest further sink you into trouble. If the IRS places a lien on you, you might suffer from credit issues or from not being able to refinance your home to a historically low rate. Things get worse when the IRS starts seizing your real and personal property. Time is not on your side when it comes to IRS tax problems.
Compliance Required by the IRS
To negotiate the back tax amount that you owe with the IRS, you must be “current” with any filing and payment obligations. For filing compliance, you must have filed the six most recent tax returns, even if you didn’t file for more than 6 years.
You should also be compliant with the payment requirement. For individuals, if you’re a wage earner, you must be withholding a sufficient amount from your wages, whereas self-employed individuals must make estimated tax payments. Businesses must be paying the quarterly payroll tax deposits.
Even if you can’t pay the taxes, you should still be filing your tax returns. Taxpayers are only increasing their tax bills by not filing and waiting, as they’re charged with failure-to-file penalty. The IRS charges 5% of the amount due every month for failure to file for a maximum of 25%.
Once you’re compliant with your taxes, then you’re eligible to work on a resolution with the IRS programs. However, these resolutions may not be best handled or negotiated by the taxpayers by themselves.
This Is How You Resolve Your IRS Tax Problems
There are several options to resolving your tax problems. If you qualify for an Offer in Compromise, you’re able to settle with the IRS for a substantially less than the tax amount you owe, based on your financial situation. Financial ability to pay is the most common reason an Offer is accepted. In this case, you must be able to prove that you don’t have the ability to pay back before the collection statute expiration date with well prepared documents. Keep in mind that the IRS can reject the offer if the financial documents are not professionally prepared or the taxpayer is not current with the filing and payment of taxes.
If you qualify, we will negotiate with the IRS to set up an affordable payment plan called “Partial Payment” Installment Agreement. In this agreement, you won’t be paying off the entire amount of back taxes you owe, and any balance left at the end of the term of the installment agreement is forgiven. We will create an IRS payment plan that expires long before the tax debt is paid in full, as well as negotiating the lowest possible penalties and related interest. (https://aceplustaxresolution.com/installment-agreement/)
Another is the Installment Agreement, where you won’t have to pay the full amount of taxes you owe by making monthly payments, if you qualify. There is a limit to how much they can owe to qualify for the agreement for online application. If you qualify for a “Partial Payment” Installment Agreement, you won’t have to pay for the entire amount of back taxes, since any balance left at the end of the agreed payment term will be forgiven. To draw out the most affordable payment plan, you should consult with a tax relief professional.
Another method is to see if you qualify for a Currently Not Collectible status. To enter this status, you must prove that you have dire financial situation – no assets, no job or have very little income, and you survive mostly through welfare and the help of others. By declaring this status, IRS will delay the collection process until your financial situation improves. Note that this doesn’t mean the back tax liability will disappear — the IRS can come back and collect your taxes years later. Also, penalties and interest on your tax bill can still grow.
Other solutions may include lien relief, release of wage or bank levies, penalty abatement, Bankruptcy Dischargeability Analysis, etc., depending on the non-filer’s situation.
Without these alternative solutions, the amount the taxpayer owes to the IRS can become overwhelmingly massive that he or she cannot pay off the amount. It’s like this huge snowball rolling downhill, getting bigger and bigger with growing penalties and interest.
If you’re struggling with tax problems, it is strongly recommended that you seek help from tax relief experts who can guide you through the most suitable resolution method and reduce the liability owed to the IRS to the lowest amount possible if you qualify. This can resolve your non-filing problems effectively and permanently. Not all CPAs are experts in tax relief, so find tax professionals who specialize in providing tax relief services.
Ace Plus Tax Resolution provides permanent solutions to taxpayers with IRS and state tax problems to individuals and businesses struggling with unmanageable IRS tax problems. If you’re struggling with payroll tax problems, contact their tax professionals for a free consultation. Other solutions include Offer in Compromise, and other services.
James Cha is a CPA and Certified Tax Resolution Specialist® at Ace Plus Tax Resolution, has been representing his clients and dealing with the IRS for over 30 years. His practice is in Los Angeles, but his clients are across the nation. Contact him at (213) 600-7388 or James@AcePlusTaxResolution.com.