Thousands, if not millions, of Texas residents are still reeling from the recession — an issue that for many becomes particularly apparent during tax season. Many in the state find themselves struggling to pay this year’s taxes while faced with looming back taxes from previous years. Fortunately, the Internal Revenue Service is aware of this problem and has recently become more lenient in dealing with delinquent taxpayers.
Individuals who do not think their future income will be sufficient to pay off their tax debt may be able to arrange an offer in compromise with the IRS. This agreement allows one to pay off a portion of one’s tax debt in place of the total amount, preventing any further interest or penalties. This can be hugely beneficial for many struggling taxpayers, but it is important to note that the IRS is responsible for determining how much one owes through an offer in compromise.
There are various ways one can approach unpaid back taxes. The advantages of each choice may vary depending on one’s financial and employment situation. Regardless of which method best fit’s one circumstances, it is important to contact the IRS in order to inform them of one’s intention to address the back taxes and ensure that any necessary paperwork is completed and filed in a timely manner.
Unemployed taxpayers who have no income with which to pay off back taxes can typically obtain an extension granting them six additional months in which to make their payments. Those with jobs can establish a repayment plan with the IRS, allowing them to repay their tax debt over a period of up to 24 months. However, loans from other sources can be more advantageous if they circumvent the penalties and high interest rates incurred by the IRS. That said, most experts recommend against withdrawing money from a retirement account in order to pay off back taxes, as this would incur an additional 10 percent tax penalty.
Source: MainStreet.com, “What to Do When You Can’t Pay Back Taxes,” Mechel Glass, April 3, 2013