Deal with overdue taxes this year

Deal with overdue taxes this year

For some, the new tax season can serve as a frightening reminder of past taxes that have yet to be filed and paid. Taxpayers owe more than $120 billion in back taxes, penalties and interest by 2022, according to the IRS. And soon there may be more concrete reminders to come: The IRS is continuing to send automatic collection notices for unpaid taxes in 2024 after stopping them “due to the unprecedented impact of the pandemic on COVID-19” in February 2022.

If you are one of the many taxpayers who owe tax debt at this time, resolving the issue soon can save you from penalties, interest and other serious consequences. And you can start even if you can’t pay in full. Here’s what you can do to get back on track.

IF YOU GET A NOTICE, READ THIS

The longer you take to read and respond to unpaid tax notices, the more serious your tax situation may become.

“People come into our office, and they have all these unopened letters,” says Kenneth Portera, an enrolled agent and owner of Kenneth Portera and Associates in New Jersey who works with clients who owe taxes. He wants people to open these notices when they arrive, he said. “When you get a letter, open it and find out what happened.”

If you continue to ignore the notices, the IRS may resort to drastic measures, including tax liens, wage garnishments, asset seizures and passport restrictions. And if you owe state taxes, you may face additional collections and garnishments.

However, the IRS and state tax agencies will always try to contact you before taking more drastic steps. If you show the agency that you are willing to pay – even if not the full amount – you will avoid the worst consequences.

SET UP PAYMENT PLAN

Most taxpayers can set up short- or long-term payment plans, including installment agreements, through the IRS website. To apply for one online, you must owe less than $50,000 in combined taxes, penalties and interest for a long-term plan or less than $100,000 for a short-term plan. The agency has waived setup fees for low-income taxpayers and has options for businesses, too.

If you contact the IRS and make a plan, the government will stop sending notices about your tax debt because collection is over, Portera said.

If you have a payment plan, you can update it to account for this year’s taxes.

CONTACT A PRO

Not everyone with overdue taxes needs a tax attorney. But if you’re dealing with the tax authorities, have a large amount of debt or have a tax situation that you feel you can’t handle on your own, Portera recommends seeking the help of a licensed tax professional, such as a certified public accountant, enrolled agent. or tax attorney.

If you don’t file your return, the IRS will file a replacement return for you with a suggested assessment of your debt. This tax return the IRS files for you is “almost always against you,” says Robert Persichitte, a CPA at Delagify Financial in Colorado who has experience working with clients in urgent tax situations. .

According to Persichitte, some tax preparers will look at your replacement return for free and tell you if it needs to be amended. Sometimes, a licensed tax professional can negotiate with the IRS to reduce the amount you owe. In serious cases, they may help you apply for an offer in compromise, an agreement with the IRS that settles your taxes for a lower amount.

Remember, though, that tax relief isn’t usually a quick fix – and promises of a dramatic cut in your tax debt could be a scam.

“If it sounds too true, guess what? It usually is,” Portera said. The process for negotiating a reduced tax bill is complicated, he said. If a tax assistance company doesn’t deliver and fails to communicate, he added, it could result in more interest and penalties for you, and no resolution.

For low-cost options, contact the Taxpayer Advocate Service or your local Low Income Taxpayer Clinic, which provides free or low-cost help for low-income taxpayers.

DON’T FORGET THE CURRENT TAX RETURNS

When dealing with overdue taxes, don’t forget to file taxes for 2023.

Even if you have overdue penalties – or don’t have the funds to pay your bills in full this year – stay in compliance with the IRS by filing your returns each year. The agency is more likely to waive your penalties or even agree to reduce your tax liability if you have a history of compliance.

Dalia Ramirez is a writer for NerdWallet. Email: [email protected]. Claire Tsosie, an assigning editor at NerdWallet, contributed reporting to this article.

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