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The tax-extension deadline is approaching on Oct. 17, and a record 19 million Americans filed for more time to manage their 2021 returns, according to the IRS.
While unpaid tax balances for 2021 have racked up late payment penalties since April 18, filers with tax debt may have more options than they think, experts say.
“The IRS is not the boogeyman,” said Sheneya Wilson, CPA and founder of Fola Financial in New York City, who urges filers not to ignore notices from the agency.
“My biggest piece of advice is not to be negligent,” said Wilson, explaining how IRS tax issues become tougher to resolve when filers ignore the agency’s correspondence.
“It just makes it harder to set up a payment plan,” she said.
If you’re wrestling with tax debt, here are some options to consider.
The most popular option is to apply for an installment agreement, a long-term monthly payment plan through the IRS, according to Wilson.
If you owe $50,000 or less, including tax, penalties and interest, you can set up an installment plan online, which “takes about five minutes” but you’ll have to call the IRS for larger amounts, she said.
However, the agency won’t approve the plan with other unfiled returns.
Of course, you’ll want to agree to an affordable monthly payment, and you’ll need to pay future taxes on time to avoid defaulting on your agreement, the Taxpayer Advocate Service has warned.
Another option, known as an offer in compromise, may allow you to settle for less than you owe. However, the IRS encourages taxpayers to explore “all other payment options” first.
If you can show that you’ve gone through some type of financial hardship, it may be possible to reduce your liability through an offer in compromise, Wilson said.
“The IRS does allow you to significantly knock down the total amount due,” she said.
To qualify, you must be current on all tax returns, unless there’s a valid extension on file, and up to date with required estimated tax payments.
There’s also a “currently not collectible” status in which the IRS may temporarily stop trying to retrieve unpaid balances.
However, if approved, the outstanding debt may still rack up penalties and interest, and the IRS may use your future refunds to cover the balance, according to the Taxpayer Advocate. You’ll also need to stay current on future taxes.
You may also qualify for penalty relief if you weren’t able to comply due to “circumstances beyond your control,” according to the IRS.
For example, if a first-year business accidentally misses the deadline for corporate filings or its accountant gets backed up, “that may be reasonable grounds to ask for penalty abatement,” Wilson said. “Many taxpayers don’t know that.”
While taxpayers may experience long hold times, the IRS may process some requests for penalty abatement by calling the number on your notice.
Image and article originally from www.cnbc.com. Read the original article here.