4 options for paying your taxes
Q: I REALLY did good in Sunrider this year! Now I just recently filed my taxes. I ended up owing the IRS far more than I had anticipated. Do I have any options, aside from paying the bill in full?
A: People go into business ( such as Sunrider) for themselves for a variety of reasons, usually because they are passionate about something and want to spend more doing it. But just because you love something and have the wherewithal to turn that passion into a business, it does not necessarily follow that you have all of the skills required to be a successful business person. That we need help understanding various aspects of business – taxes for example.
One of the easiest, smartest things you can do is get a software program to handle your finances more efficiently. For instance, Quicken is a popular one. QuickBooks, from the same company, but a lot more bells and whistles. PeachTree too. Even MicroSoft has a free one.
Then, if you don’t go the accountant route, you can get yourself a do it yourself TAX filer program. I have used TAXACT for a number of years. You can use their forms on-line and it is free. Or for around 20-25 dollars you can get the whole program including the forms for your State.
However, let’s get back to what you can do if you owe the IRS more than you have! Scary!
When back taxes are owed, some small business owners decide that the best solution is to tap their home equity or retirement accounts to get rid of the bill. While understandable, practical even, be careful when doing so. Tax debts can be paid in installments, but mortgage arrears can cause you to lose you home.
The most important thing you can do when you or your business owes back taxes is to communicate with Uncle Sam. It is when you avoid the issue because it is uncomfortable that you make matters worse. When you do communicate, here are your options:
1.Payment Plan: Whether you call it a payment plan, installment agreement or payment agreement, this option allows you to pay off the entire amount you owe in manageable monthly payments. The process for setting up a payment plan depends upon how much you owe:
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If you owe less than $25,000, you can do it online by filling out Form 9465, Request for Installment Agreement.
- If you owe more than $25,000, you will first need to fill out a Collection Information Statement That, and the Form 9465, needs to be mailed to the address on your bill. The IRS will respond to your proposal within 30 days.
You may also be able to do this over the phone by calling 1-800-829-1040.
2.Offer in Compromise (OIC): When you hear about taxpayers getting out of their past-due taxes for “pennies on the dollar,” this is the program being referred to. With this arrangement, I have good news and bad news.
The good news: OIC allows certain taxpayers to get out of their tax debts by paying less than they actually owe, sometimes even pennies on the dollar. I once did an OIC for a client, a retired woman, who ended up paying about $1,700 to get out of a $25,000 tax debt.
The bad news: As you can imagine, this program is restrictive and often difficult to use.
An OIC is typically accepted if your offer equals five years of disposable income added to all of your “non-exempt” equity. For instance, if you net $2,500 a month, have $2,300 a month in expenses, and have $10,000 in home equity, then your offer has to be $200 multiplied by 60 months, plus $10,000 – $22,000. If you owe, say, $50,000 in taxes, then you would be getting out for about 40 cents on the dollar. My retired client made nothing and owned nothing, hence a good settlement.
If you think an OIC might work for you, fill out and file form 656, Offer in Compromise, and form 433-A, Collection Information Statement.
3.Not currently collectable: If the condition of your business and finances is especially dire, you may qualify for the classification “not currently collectible.” You will still owe the money, and penalties and interest will accrue, but the IRS will agree to cease all collection activities (including garnishments and bank levies) and leave you alone for up to two years. To apply, submit form 433-F.
4.Partial Installment Agreement: This option is similar to an Offer in Compromise. This time you get to pay less than you completely owe, but here, you pay that lesser amount over time whereas, with an OIC, it is usually paid as one lump sum.
For this and an OIC, you will likely need the assistance of a tax professional – either a CPA or an attorney.
NOW. . .Pay attention here! The above information is not meant to guide you in any legal matters. I gathered the above from various internet sources and they may be correct or may not. Please re-read.