Do you owe more than $10,000 in taxes? If you ever listen to AM radio or watch cable television during the day, you've heard that question before. Before you call one of those companies that advertise to take care of your tax problem, read this article to see if you can't just handle the problem yourself.
On these ads they often tell you that some of their clients paid just pennies on the dollar for what they owed. This is usually from one of two things: filing an original return or an offer in compromise.
When a person does not file their own tax return but records show that he or she had income for that year, then the IRS will try to contact him or her to file a return. If the person doesn't provide one, then the IRS will file a tax return on behalf of the taxpayer. This generally results in more tax owed than if the person had just filed his or her own return, especially if the had had 1099 income, stock sales before the costs basis was reported to the IRS, or a home sale. In these cases, the IRS does not know what the expenses were to offset some of the gain, so it is all income in their eyes. So, if you owe taxes because you didn't file your own, then just get your records together and file a return. It is the simplest way to save on taxes. If you aren't sure why you owe or just want to see what penalties have been assessed against you, you can look up your transcripts by going to IRS.gov and search transcripts. There you can sign up to see what you owe for.
If you owe the tax buy know that you'll never be able to pay the full amount, then you can file an Offer in Compromise and you don't need any special help. This is a program that lets you pay less than you owe if your offer is accepted. To apply, you first need to make sure you have filed all of the necessary tax returns. If you aren't compliant with filing, you can't file an offer. If you are self-employed, you also need to be making your estimated payments.
Once you have done this, you will want to know how much you should offer so that it will likely be accepted. On the IRS website, complete the 433-A OIC form and the Form 656. This will show the what your assets are and will help calculate what a reasonable offer should be. There is also a calculator on the IRS website. Just search Offer in Compromise Pre-Qualifier. Along with the forms, you will need to send in some supporting documentation to show what your financial situation is. All this you can do on your own.
With the OIC, there are two ways to go about it. Either pay 20% with your offer and then wait for them to accept or reject the offer. If they accept it, then you pay the remaining amount in payments over five months. The other way is to make your payments in equal amounts up to 24 months, even while they are deciding if it is a valid offer or not.
Two things about the OIC. If you have substantial equity in your home or vehicles or any other asset, you have to use that first to pay off what you can before they will accept it. The other important item is that you must be diligent about staying current with your taxes for the next five years or your accepted offer will be negated and everything comes back.
If you can't afford to pay anything on your taxes because you don't have any money, then definitely don't pay money to a company for them just to tell the IRS that you can't pay. Some of these ads on the radio act like the CNC currently not collectible program is some new or secret program that only they know about. If you can't pay, just respond to the phone number on the letters that you've received and tell them you can't pay. They'll ask you for financial information to show that is the case, and as long as you cooperate with them, then you should be fine. Now, it may be that you think you can't pay, but really you can and you'll have to work out a payment plan. To see if your income is less than the expenses that the IRS allows, search for Allowable Living Expenses and you can see what the national and local standards are.
If you have the ability to make payments and do not qualify for an offer because you make too much money or have equity in assets, then you can always try to set up a payment plan. You can fill out an online payment installment agreement form on the IRS website. If your case has been assigned to field collection, then work with them on setting up the payment plan, If you have all of your returns filed and you owe less than $25,000, then you can set up a payment for any amount that will pay the balance in less than six years. If you owe more than that but less than $50,000, sort of the same rules apply, but you will need to fill out the 433A form, just to make sure that you aren't set up for a payment that is more than you can afford. If you owe more than $50,000, then you will have to complete the 433A and provided proof of your financial situation and then if you have equity in assets like your home or similar items, you will be expected to borrow against them or sell them to at least bring the amount below $50,000 to then set up a six year payment plan.
These are the rules for people with 1040 tax owed or employment taxes for people with an out of business sole proprietorship. If you have a corporation, LLC, partnership or in business sole proprietorship, different rules will apply.