Filing Taxes When You Owe The IRS
When you encounter a tax debt, it is important that you act on it as soon as you can. If you don’t meet the terms of the IRS, you run the risk of accumulating interest and fines that you will be forced to pay. There is no escape from the IRS: If you have debts or will not be able to handle an upcoming tax debt, you must respond and contact the government agency; or else you will receive a Notice of
lien intention. If you receive this notice, that implies that after thirty days from the published date, the IRS is permitted to withdraw money from your bank account or other financial account, garnish your wages, take your real estate, and seize any personal property and assets. Ever since 1995 when Tax Day was shifted from March 15th to April 15th, the welcoming of the spring season doubles as a reminder to fulfill your annual tax-filing duties. If you’re like most American taxpayers, you leave the heavy-lifting duties to automated e-file systems or tax professionals to square away your tax return, but that doesn’t mean that everything is out of your hands. In the event that you owe the IRS any amount of money, you’ll need to critically assess how your tax liability changes.
If you’re wondering “can I file taxes if I owe the IRS?” or “what do I do if I can’t pay the IRS”, we’ll discuss everything you need to know about tax filing when you owe money, the penalties to expect in certain situations, and ideal ways to handle repayment on back taxes.
Filing Taxes If You Owe the IRS
There is a whole lot of stress attributed to tax seasons. This is mostly true if you owe back taxes or have recently discovered you owe a tax balance to the IRS. Threatening as it may seem, there are a number of significant avenues available to you to properly manage and repay your debts.
For the 2020 year, Tax Day was formally pushed from April 15th to July 15th in light of the
COVID-19 pandemic. This gives taxpayers an extra three months to file and assess their tax liability and find workable methods to make up for any IRS bills owed.
No two persons’ tax circumstances will be exactly alike, should you find yourself in a situation where you’re wondering “can I file taxes if I owe the IRS?” or “what can I do if I can’t pay my IRS bill?” you may need some third-party assistance. Answers will be provided to those questions and give you the guidance and reassurance you will need.
What Happens If You Owe the IRS and Don’t File?
One of the most common slip-up made by taxpayers who owe the IRS is forgoing the tax filing process altogether. Owing the IRS does not restrict you from your regular tax filing duties; in fact, doing so will only make your situation worsen.
When you fail to file your annual tax return, the IRS automatically slaps on a 5% penalty for each month past tax day that you neglect to file. The maximum failure to
file penalty tops out at 25%, but it’s worth noting that while the percentage may be cut, you’ll still be responsible for paying any interest accrued on the bill up until it is paid in full.
If you anticipate that you will not be able to file your taxes by Tax Day, it’s very important that you request an extension as soon as possible. When filed, signed, and approved, IRS Form
Tax Penalty 4868 offers an extra six months for you to turn in your tax return. It’s significant to note that getting approved for an extension does not offer you more time to pay your taxes, it simply provides more time for you to file your return.
Don’t forget that state and local taxes are also subject to further failure-to-file penalties, which are entirely determined by state law. California, for example, imposes a 10% fee
What Happens If You Owe the IRS and Don’t Pay?
In a situation that you owe the IRS an outstanding tax balance and do not pay it off, you will become subject to a number of serious potential consequences. You’ll first receive a strict letter from the IRS which will quickly escalate into increasingly grievous penalties if you refuse to make a payment or configure a payment plan.
Between the due date and the date your bill is eventually paid, the sum of your unpaid taxes will accumulate both penalties and interest. Interest will begin accumulating on the date stated on your IRS notice and will compound daily until your
tax balance is paid in full. The current interest rate sits at 5% while the
failure to pay penalty is 0.5% per month.
Delayed evasion of paying your tax bill could lead to the IRS taking money out of future
tax refunds if you’re owed any. Continued negligence could lead to the IRS placing a federal
tax lien against your property. Federal liens are structured to protect the government’s interests at all costs which means the IRS is authorized to make a legitimate claim on your real estate and other assets. If you’re too slow to take care of a federal tax lien, a tax levy could be the next step.
Tax levies authorize
the IRS to seize your assets to fully recover your outstanding
tax debt.
Tax levies take many different forms, including:
1.
Property seizure: Everything from your house to your car can be seized by the IRS and sold to offset your remaining tax balance.
2.
Bank levies: The IRS can require your bank to disallow any withdrawals from your account for 21 days. The IRS also can also withdraw funds from your account and require your financial institute to comply.
3.
Wage garnishment: The IRS can require your employer to hold back a portion of your paycheck and send it directly to the IRS until your debts are paid completely.
Failure to pay taxes could even result in jail time, though it’s highly improbable unless you owe hundreds of thousands of tax dollars.
