It's that time of year again! (Really, though, when isn't that time of year?) April 15 is looming in big red letters on the calendars of approximately 3.41 bazillion Americans, and if you're as accurate as I am at estimating big numbers, you should have no problem with your taxes.
Taxes are a nervewracking thing for many Americans. And as Americans continue to accrue more and more debt and the economy continues to get wobblier and wobblier (real word, I swear), tax debt is a realistic and common source of financial stress for many of us. As with the rest of your finances, it's important to take control of any tax problems as soon as you can, avoid accruing further tax debt, and prepare ahead for next year's taxes. Read on for our suggestions on how to sucessfully navigate this daunting process.
Finding Tax Debt Relief
Find a professional accountant or tax agent to help you get rid of your tax debt. An experienced, trustworthy accountant can help you understand, manage, and take control of your tax problems, as well as act as a mediator between you and the IRS. The fees you'll pay an accountant are a small price to pay to prevent much larger debt accumulation and IRS penalty fees later on. Don't wait until things are out of control, or two days before April 15, to meet with a professional, and when you do meet with your accountant, be sure to have all your financial papers, tax documents, spending records, etc. organized and with you -- being prepared will them help you get rid of your tax debt as fast as possible.
If you're having trouble filing your (federal) tax forms on time, you can file for an extension. You, or your accountant, can file Form 4868: Application for Automatic Extension of Time To File U.S. Income Tax Return
for an automatic six-month extension of time to file your taxes. Form 4868 still needs to be filed by April 15th , and once your six-month extension is up you won't be able to get any more extra time to actually pay your taxes.
Set up a payment plan for back taxes owed. If you still owe taxes from a previous year, or won't be able to pay your federal taxes in full this year, set up a payment plan with the IRS as soon as possible. You or your accountant can set up a payment plan for taxes owed by proving that you are unable to pay your taxes in full, or make large payments, without experiencing economic hardship (defined by the IRS as unable to meet basic living expenses). Once this qualification has been established you can create an affordable payment plan that will satsify the tax collectors and give you some serious financial relief.
If you're struggling with a lot of accumulated tax debt and unable to meet the even the minimal fees of IRS tax collectors, look into making an Offer in Compromise (OIC). An Offer in Compromise is basically an agreement between you and the IRS that allows you to get rid of your tax debt by paying a one-time discounted settlement on your taxes owed. In return, you sign an agreement promising to file and pay your taxes on time and in full for the next five years. The IRS has a complex system of calculations determining when an OIC is economically viable for them (if they'll spend more on collection efforts in the future than they can expect to see in payments, then they'll probably settle for an OIC), and it's important to be as accurate as possible about your finances in order to avoid paying too much or too little, or accrueing further penalties. Because of this, it's best to work with a qualified accountant or tax relief agency to file for and negotiate a sucessful Offer in Compromise.
Submit a Penalty Abatement request to the IRS to avoid paying extra penalties on a justifed tax debt. A sucessful Penalty Abatement request will prevent (or refund) automatic penalty fees added by the IRS to your unpaid tax debt, but only if you can prove that you had an acceptable reason for not paying your taxes on time. Reasonable causes for tax debt can include serious physical or mental illness, death in the family, natural disaster, theft, destruction of financial records, divorce, severely limited income, and unemployment. It's best to work with an accountant when submitting a Penalty Abatement request in order to ensure the most accurate representation of your financial situation possible.
Finding Professional Tax Assistance
Having a professional accountant help you with your finances, specifically your tax debts, can save you a lot of time, money, and energy (read: weeping and gnashing of teeth). Any accountant worth their fees will be able to help you organize your financial paperwork, understand your finances and your tax obligations, and suggest realistic solutions to your tax debt (see suggestions above).
It is essential, however, to find a trustworthy, qualified, experienced accountant to help you with your financial problems. Bad financial advice can make your problems a lot worse, lose you money, and leave you more confused about money than you were before. Look for a CPA with a good reputation, lots of experience, and a solid client base in your town or city. Ask your financially stable friends and family to recommend an accountant. Seek out a national financial advising and tax preparation company, such as H&R Block.
