Tax debt is becoming increasingly common as people struggle with the cost of living crisis and inflation. Unfortunately, failing to pay your taxes on time comes with consequences. You’ll have to pay penalties for late taxes, and in the worst-case scenario, the IRS might garnish your wages or seize your property. If you think you won’t be able to pay your bill this year, reach out to a Louisiana tax resolution specialist as soon as possible.
WHAT ARE THE PENALTIES FOR LATE TAXES?
When you fail to pay your taxes, 0.5% of the total value of your bill is added to your account every month. This means that you’ll pay 6% more if you delay payment for a year. The maximum penalty is 25%. However, it’s important to note that there is also interest, which is calculated and added to your account daily.
The interest rate is the federal short-term rate plus 3%, and it is updated quarterly. At the end of 2022, it was 6%, but it is rising to 7% in 2023. Large corporations generally pay 2% more than individuals and small businesses.
What If I Don’t Pay for Many Months?
As you can see, your tax debt will accumulate rapidly if you don’t pay it off quickly. There are also additional consequences to consider, which could be detrimental to your financial security. The IRS has immense collection power, and they can place a levy on your property if you don’t pay your taxes or make use of the forgiveness program.
A levy allows them to eventually collect your assets as payment. By failing to pay your taxes, you put your home, your car, any valuables, and the savings in your bank accounts at risk. The IRS can also garnish your wages, which means that they’ll take a part of your salary as payment. To avoid this, reach out to a tax resolution specialist who will negotiate with the IRS and come up with a workable solution.
Are There Any Other Charges?
The failure to pay penalty isn’t the only charge you might face. People who don’t file their tax return have to pay an extra 5% every month, up to a total of 25%. Because this penalty accumulates much faster, you’ll have to pay the full 25% if you delay filing for just five months. Even if you don’t know how you’ll pay your taxes, always submit your return.
Do I Have to Pay These Penalties?
You don’t necessarily have to pay the penalties that have been added to your account. As soon as you notice that you can’t pay your taxes, speak to an expert and resolve your situation. Once you’ve done this, and you’ve come up with a payment plan that works for you, ask the IRS to remove the penalties from your account.
If you’ve never had any issues with your taxes before, you likely won’t have to pay. People who have previously been in trouble with the IRS will need to give a valid reason why they couldn’t file their taxes or settle their bills on time. Some reasons that are almost always accepted are a severe illness, the death of a close family member, or a natural disaster that destroyed the person’s home.
LOUISIANA TAX RESOLUTION: HOW TO PREVENT TAX PROBLEMS
Millions of people struggle to pay their taxes, so the IRS has come up with a forgiveness program. There are several options that allow taxpayers to spread out, reduce, or temporarily pause their payments and therefore prevent the consequences of late taxes.
As soon as you’ve come to an agreement with the IRS, they can no longer place a levy on your property. Any current collection activity will stop, so your assets and your wages are no longer at risk. The earlier you contact a Louisiana tax resolution specialist, the more easily a solution can be found.
Making an Installment Agreement
For most people, the easiest and quickest way to get rid of tax debt is to make an installment agreement with the IRS. This allows you to pay off your debt in manageable chunks over many months or even years. Once your agreement has been made, it’s important to stick to it. Discuss your financial situation with your consultant to determine how much you can realistically pay every month.
If you have a small amount of tax debt, you’ll be able to set up your installment agreement online. However, people and businesses that still have to pay a significant amount of taxes need to reach out to the IRS via the phone or fill out a form. The maximum length of an installment agreement is usually 72 months.
Making an Offer in Compromise
People who don’t believe that they are able to pay the entire amount outstanding can make an offer in compromise. This is an excellent way to lower your tax bill because you’ll get a part of your debt removed from your account. However, it’s very hard to get an OIC accepted, and around two-thirds of applications are rejected.
This is because the IRS believes that almost everyone is able to meet their tax obligations, as long as they are given enough time. You’re only eligible for an OIC if paying the full amount would create financial hardship for you and your family. This can be hard to prove, so working with an experienced tax professional is essential.
Is There a Way Not to Pay at All?
If you’ve recently lost your job, become unwell, had a severe accident, or quit to take care of a family member, your income might have decreased dramatically. Taxpayers in this situation often have no money to spare, so they are unable to pay off their debt. The best way forward is to get currently not collectible status. When you’re CNC, the IRS doesn’t expect you to pay, and you won’t face asset seizure or wage garnishment.
Although CNC status is a great short-term solution, it’s important to consider that your debt doesn’t simply vanish. You’ll still have to pay the full amount, unless your situation remains precarious for 10 years or more. The IRS also keeps charging you interest and penalties, so you might have to pay significantly more once your finances are stable again.
Other Tax Resolution Strategies
There are several other options for people struggling with tax debt. If your partner made a mistake on your joint return, and you didn’t know about it, you might be eligible for innocent spouse relief. However, you’ll have to give a good reason why you didn’t realize that there was an error.
Another option is to pay off your debt right away by using a credit card or low-interest loan. This is an excellent solution for people who have a good credit score and are therefore eligible for zero-interest cards and other good offers. Because there are fees associated with the installment agreement, using other types of debt is sometimes cheaper.
People who don’t pay their taxes on time have to pay 0.5% extra every month, and they are charged interest. The longer you don’t pay, the greater the risk because the IRS might seize your property or garnish your wages. Get in touch with us at Geaux Tax Resolution to find out how to best deal with late taxes. We offer Louisiana tax resolution services to residents struggling to pay and those who believe that there has been a mistake in their return.
