Tax season occurs during the first half of the year and can be incredibly stressful for millions of Americans. Although it may bode good news for some since it brings them large returns, others must look for ways to repay what they owe. If you owe the Internal Revenue Service or IRS money, your financial situation can look like a lost cause, as not being able to pay your taxes often indicates trouble in your finances.
In this case, working with tax resolution specialists may help you get back on track and manage your tax debt better. However, it’s vital to hire tax relief companies with reputable reputations, as you wouldn’t want to risk giving what’s left of your money to someone who will ultimately run away with it. Here’s what you need to know about dealing with tax debt:
Repaying Tax Debt
Tax debt occurs for many reasons. 2020 was unprecedented for the world, with the pandemic causing loss of employment for millions of people. Health issues have also plagued many people, hindering their ability to work and earn money. Without having the resources to pay for necessities, taxes often got put on the back burner, resulting in a severe financial crisis.
Knowing that you cannot pay what you owe at the moment can feel very distressing. Luckily, there are many options available to you. The IRS evaluates two types of tax penalties: the first is for filing late, and the second is for failing to pay at all. The penalty for filing late is 5 percent of the unpaid taxes each month your return is late, reaching a maximum of 25 percent. On the other hand, the late-payment penalty is 0.5 percent of your unpaid taxes per month past the due date with the same maximum penalty of 25 percent.
You’ll also have to figure out your options to pay off your dues. Can you gather enough from your savings to pay your debt, or can you put it on your credit card? Take note of the pros and cons of each option, as one may lead to even more debt in the long run. It’s best to consult a tax resolution specialist for some debt advice to find the most practical method for repaying your tax dues.
Getting a Notice from the IRS
The IRS will send you a notice or a letter for numerous reasons, such as an issue on your federal tax return or account. They may also inform you of changes to your account, request more information, or follow up on a due payment. Whatever message you receive, never ignore it. Here are some of the common reasons the IRS reaches out to taxpayers:
- They have a balance they must pay
- They are due a smaller or larger refund
- The IRS has a question about the submitted tax return
- The IRS must verify the taxpayer’s identity
- The IRS requires more information
- The IRS changed its tax return
Never ignore the notices and letters, as they always explain the reason they were sent. Don’t panic either, as they contact taxpayers by mail. Once you receive it, you must read the message carefully and take the relevant action. Respond on time to minimize additional interest and penalties and exercise your appeal rights if you disagree with the action taken. As soon as possible, pay the amount due, even if you can’t pay the total amount. Keep a copy of the letter and note that the IRS never contacts taxpayers through text or social media, which are often signs of scams.
The IRS understands that not everyone can pay their debts right away, so it’s best to be upfront about your situation to coordinate with them on the most practical way to pay your taxes. By understanding the nature of tax debt and the best ways to approach it, you’ll avoid hefty penalties and additional charges.
If you’re looking for tax relief help, let us know at Axiom Tax Resolution Group! We offer tax resolution services that can help you find a permanent solution to your tax problems with the IRS. Contact us today to get started!