Paying taxes is the bane of most modern working people. It is a system that citizens generally dislike and have a lot of negativity towards. Be that as it may, it is an important system that helps the governments stay operational and everything in the country function more easily in terms of finances. Despite the bad blood between tax agencies and services and common folk, everyone has to pay them and that will probably always be true.
However, it seems that not everyone knows enough about paying them so each year hundreds of thousands of people end up in debt to revenue and tax services. Why is that and how come so many people do not know how to properly calculate their taxes and what options to consider? If this sounds like something that you can benefit from knowing, you came to the right place. Right here in this article we will give you all the info and tips you need to understand your debt and the options you have.
In case you wish to find out more about this ever important topic and have all the information possible next time around, make sure to check out Optima Tax Relief.
Understanding the Debt
Tax debt occurs when an individual forgets or fails to file their taxes, either partially or completely. The more you forget and the more wrong you calculate and file them, the more debt will come your way eventually. If there is a mistake on your report, the body in like the IRS in the USA will want to fix it and therefore change your taxes. Their way of doing so is telling you that you owe them money which comes as tax debt.
To put things in perspective of how big of an issue this is in the USA, on 2017 alone more than 850,000 people had miscalculated and misfiled tax reports. Their accounts resulted in them having to pay a lot more money than they thought. Fortunately for these, and other taxpayers, there are many options one can take in an effort to resolve their debt to the IRS. Reducing the amount of money you owe or eliminating it entirely are both possible but only in some cases. Correcting the report and paying no or limited penalties are all possible and you need to know about them.
Tips and Advice
Let us talk about what you need to know and how to act in order to understand the debt and the options.
1. Use the First Time Abatement Option
If you have ended up owing money to the IRS for whatever reason but it is your first time, you are eligible for a first-time abatement or FTA. They will ask you for proof that this is your first mistake and if it truly is, you will have no tax relate penalties to pay for that tax period. The proof comes in the form of previously filed and paid taxes without errors and in their entirety. Additionally, there needs to be a three-year period of no penalties on your tax records for you to exercise the FTA. This is only a one time offer and once you use it you will not have another chance.
2. Reasonable Causes for Penalty Abatement
In some special cases that usually have to do with extreme scenarios, you could file for a reasonable cause penalty abatement if you have already used your FTA. Examples of these causes include casualties, fires, natural disasters, deaths, serious injuries and illnesses, unavoidable absences, inabilities to get proper or complete records, and poor IRS advice. All of these will require proof and the circumstances will be checked in great detail. If your debt is a result of some of these scenarios, you may be able to go without penalties and have much less money to pay. Financial hardships and the inability to file taxes correctly and then having to pay penalties would not be your own fault in the end and you will have an easier time.
3. Never Procrastinate
Procrastinating never did anyone any good. It did not help you when you had to study for exams and back in the day when you were putting of school work, and it will hardly help you now with paying taxes. Tax debt gets out of hand extremely quickly and that is why it is such a problem for so many people. Taxpayers think they will deal with it easily and put it off for later, only for them to faint once they realize how much they owe. The interest starts from 0.5% of the debt each month and adds up lighting fast. Measures become more serious over time because you are not taking action and they start to realize you are becoming a problem for them. The original debt will not be a problem, but the interest combined with penalties will. The sooner you take action the easier it will be.
4. Think About Installments
Installment plans have helped billions of people in different ways, and in terms of tax debt it means stretching your payment over as much as 84 months or 7 years. This can be exercised by anyone who owns between $50,000 and $100,000. Different agreements and installments exist, like guaranteed and streamlined, and they have to deal with different amounts owed and different circumstances. Streamlined means that the agency will not investigate your financial situation during your payments and there will be less paperwork involved. You qualify for this if you owe at least $30,000. On the other hand, guaranteed installment is for those owing $10,000. Each installment comes with minimal monthly payment on which you cannot go lower. You can always pay more though if you end up with more money.
- Ask for a different payment arrangement if you cannot pay the minimum
- Do not try to put unnecessary expenses as necessary on the report
- Examine what necessary expenses you have paid for and if you calculated them properly