- January 21, 2019
- Posted by: ajain
- Category: Tax Resolution
Detaxify knows New York City. We started out in the financial district, and most of our clients are in the area. We are New Yorkers, and we do business like New Yorkers walk; briskly, efficiently, and minding our business. Bronx, Brooklyn, Manhattan, Queens, or Staten Island; wherever you come from, Detaxify is ready to serve the fine New York community with any IRS or State tax matter.
New York State and Federal Back Taxes
Taxpayers from all across the country often fail to file their annual returns. There are a myriad of reasons, ranging from personal to medical. Whatever your reasons for falling behind, Detaxify is more than happy to catch you up.
What Happens if I don’t pay?
You might have heard of the phrase “tax evasion,” with the most prominent example being Al Capone. Mr. Capone, a notorious crime lord, was only ever brought to justice for failing to filing his taxes. The IRS can charge individuals with tax evasion, as willingly declining to file tax returns, or refusing to pay taxes owed is a federal criminal violation. Does this mean the IRS is going to lock up everyone who doesn’t pay up? No, the IRS is more interested in getting it’s money than jailing up every Tom, Dick, or Harry who forgot to file. The IRS likes to save the tax evasion conviction for individuals running a large-scale illegal enterprise. For the average tax payer, the IRS has some other penalties they can add to your liability instead.
Failure to File
If you don’t file by the mandatory due date (April 15th or the next business day if the 15th is a holiday where you live), the IRS will slap on a failure to file penalty. The penalty is 5% of the amount owed for every month your return is late, up to 25% maximum. How can you avoid this penalty? You can always request an extension to file, even after the deadline to file has passed. This can buy you time, but you will still have to file.
Failure to Pay
If you fail to pay the amount of taxes due, the IRS will add this penalty to your outstanding balance. Failure to file penalties are 0.5% of the unpaid tax per month unpaid. This penalty is a lot less intimidating than the failure to file penalty as the IRS wants taxpayers to file. That does not mean that this penalty cannot become ridiculous. If you think you can avoid this penalty just by not filing, you might be in for a nasty surprise.
If the IRS does not receive a return from you, it might file one for you on its own. They would fill it with the information they receive from your job and your bank records, just without whatever deductions and credits you might be eligible for. This alternate return will often calculate that you owe more tax than you actually do, and the penalties will accrue off this larger “amount owed.”
Failure to Pay Proper Estimated Tax
This penalty comes in if you fail to pay enough taxes due for the year from your quarterly estimated payments. These payments are typically required among taxpayers who expect to pay at least $1,000 in tax after withholding’s and refundable credits. The failure to pay proper estimated tax penalty is calculated using Form 2210.
If your check doesn’t clear, the IRS will hit you with a Dishonored Check penalty. The IRS will send you letter 608C Dishonored Check Penalty Explained. This penalty isn’t often large; it depends on the amount of the payment that was supposed to clear. If the payment was over $1,250, the penalty is going to be 2% of the payment amount. For payments under the $1,250 threshold the penalty is either the outstanding amount or $25, which ever is less.
New York Tax Relief Resolutions
It’s very hard for someone’s tax history to be beyond repair. Our dedicated team in New York is trained and determined to find the best cost-effective solution for tax relief for each individual case we take on. One of our first steps is to see if you qualify for any form of penalty abatement. This can often help trim down the outstanding balance to something much more manageable.
How can my penalties be abated?
There are four ways for you to qualify for any penalty abatement.
- Reliance on inaccurate written advice by an IRS officer or employee
- Reliance on inaccurate written advice by a Tax Advisor
- Reasonable Cause
- First Time Abatement (FTA)
For most situations, reasonable cause or FTA will be that way to go. Our New York professionals will determine if reasonable cause can help cut your delinquent taxes down to size.
The IRS defines “reasonable cause” as life circumstances, beyond the control of the taxpayer, that affected their ability to file or pay taxes. Some examples include military service, unavoidable extended absence from the country, serious illness, death, significant family events, or even natural disaster. To utilize reasonable cause to cut down your penalties, our dedicated team of New York tax professionals will work with you to document to the IRS why you qualify for this penalty abatement.
First Time Abatement is available for tax payers who are current with all tax filings, have paid or arranged to pay any taxes due, and have not accrued any penalties for the past three years. FTA can only apply once per taxpayer, hence the name.
What if I don’t qualify for abatement?
If your outstanding balance doesn’t qualify for any abatement’s, or you have reduced the balance as much as possible, its time to negotiate a collection option with the IRS. If your outstanding balance is less than $10,000, your best bet is to negotiate with the IRS directly. Any higher, and you should probably talk with a tax professional before moving forward.
There are a few options for starting to pay back the IRS.
These payment plans are the bread and butter of the IRS collection team. They allow taxpayers who are unable to pay off their total balance to cut it down in monthly installments. Interest is still going to accrue, however; at a significantly lower rate. There are four different installment plans that the IRS will try to put you on.
- Guaranteed Installment Agreement: If your outstanding balance is $10,000 or less, the IRS is guaranteed to agree to an installment plan if you meet the following criteria:
- You filed your taxes
- You’ll pay off your balance in 36 months or less
- You haven’t filed or paid late in the past 5 years
- You’ve had no other installment agreements in the last 5 years
- You agree to file and pay on time for future tax years
- Non-disclosure Installment Agreement: Should you owe over $50,000 and need a repayment term of over 5 years, your agreement must be negotiated directly with an IRS agent.
- Streamlined Installment Agreement: This plan is a part of the Fresh Start Program. Taxpayers can qualify for this plan if they owe $25,000 or less, and agree to pay off the balance in 72 months or less.
- Partial Payment Installment Agreement: This plan is best for taxpayers who can’t afford the minimum payment in a guaranteed or streamlined plan, as the monthly payment is based on what the taxpayer can actually afford.
Offer in Compromise
This resolution options is often marketed by less-reputable firms as a “guarantee.” Anyone who guarantee’s an OIC is just after your money, and you should be immediately wary of them. OIC’s are agreements between the IRS and the taxpayer to settle the liability for less than the outstanding liability. To read more about Offers in Compromise, visit our article here.
Currently Not Collectible Status
This resolution option is a way to defer paying taxes until your financial situation improves, and if placed on this status, the IRS cannot attempt to collect from you in anyway such as lien’s, levy’s, or garnishment’s. To read more about CNC status, visit our article here.
In some cases, taxpayers can clear out most of their tax debt by filing for Chapter 7 bankruptcy. To go with this resolution option, there are some conditions that need to be met first.
- Your taxes owed must be income taxes.
- You did not commit fraud or willful tax evasion.
- Your debt must be at least 3 years old.
- You have filed your tax returns.
- Lastly, you must wait at least 240 days after your debt has been assessed by the IRS.
If you can check off all these boxes, bankruptcy can be a viable option. If you think you may qualify for these resolution or abatement options, please contact our dedicated team of tax professionals.