Trucking & Taxes – May 2024
Owing the Internal Revenue Service can be stressful and frightening.
All the letters, demands for payment, reminders of payment due and threats of liens, wage garnishment or levy can affect your whole life and place strain on your family.
Yes, it’s true: The IRS has a lot of power when it comes to collection. That is how this country survives off tax dollars. But are there ways to stop the IRS? The simple answer is yes.
First things first, though – make every effort to not owe in the first place by paying estimated taxes. Many assume these aren’t required, but that’s not true. The 2024 due dates for the estimated tax payments the IRS requires are April 15, June 17, Sept. 16 and Jan. 15, 2025. If made correctly, these should lower your liability at tax filing time.
Now that you know how to take care of your estimated taxes, let’s settle your current tax debt with the IRS.
The IRS, of course, would like to have you fully pay the tax debt immediately. If you have the money and can fully pay, do so as soon as possible to avoid more penalties and interest.
There is no fee for making this Automated Clearing House payment to the IRS for the entire balance due. You can even schedule it through IRS.gov. The IRS will charge interest and applicable penalties through the date of payment.
The second option is a short-term plan to pay the debt in 180 days. The IRS does not charge any fee for this plan, either. But again, it will charge interest and applicable penalties through the date of payment.
Another option is a long-term payment plan or installment agreement. This plan includes an initial fee of $130 if set up online at IRS.gov or of $225 if set up by phone. If you prove you are a low-income taxpayer, the fee is reduced to $43. Again, the IRS will charge interest and applicable penalties until the debt is paid in full.
If a taxpayer cannot afford to pay off all debt, the IRS sometimes will agree to settle some of the taxes owed. This can happen in a few different ways, including a partial payment installment agreement, a currently-not-collectible status or an offer in compromise.
Partial payment installment agreement
This is when you make monthly payments until the tax liability expires, without paying the whole balance, and it results in the IRS settling the remaining balance for less than what was owed. Then, the IRS writes off the rest of the debt due to the expiration of the statute of limitations. For example: You owe $32,000 on a tax debt that expires in five years, and you can afford to pay only $200 per month. If the IRS approves a partial payment plan, you pay $200 per month for five years, which totals $12,000. The IRS then writes off the remaining $20,000 of your tax bill. This is very helpful, since even the added interest on the $32,000 is written off.
Currently-not-collectible status
Obtaining this hardship status with the IRS emerges as a lifeline for individuals, sole proprietors, partnerships, limited liability companies and S-corps unable to afford their IRS tax bill. Currently-not-collectible status aids those in financial distress by providing a temporary cessation of collection activities.
However, assigning CNC status is not a decision the IRS takes lightly; it requires an in-depth review process. While CNC status does not automatically erase tax liability, it offers a reprieve for pursuing financial recovery. And if your income does not change over the life of your tax debt, CNC status could provide a complete elimination of the debt due to the expiration of the statute of limitations.
Offer in compromise
An offer in compromise is an option for taxpayers who meet stringent eligibility requirements. It allows settling tax debt for less than the amount owed.
There are several factors that the IRS considers when deciding whether to accept an OIC. These include income, expenses, asset equity, retirement account values and, of course, the ability to pay. The IRS will check and analyze your tax returns and your current financial records and statements to determine whether you qualify for this solution. This analysis includes national standards for expenses based on where you live, the number of people claimed on your taxes, etc. National standards limit the deductibility of expenses such as car payments, mortgage payments, utilities and much more.
In addition to meeting specific eligibility requirements, you will need to prove to the tax authorities that the payment amount you are offering is the maximum they will be able to collect. You will have to show why you simply do not have the income or financial assets to pay the full amount you owe.
Before you apply for an OIC, you must meet the following requirements:
- All required tax returns for at least the past seven years must be filed.
- There cannot be any open bankruptcy proceedings. Bankruptcy must be discharged and closed.
- Estimated tax payments for the current year must be made before filing.
- If you own a business, you must have made all the necessary tax deposits.
If you fail to meet any of these requirements, you cannot apply for an OIC.
An OIC is not right for every situation. The IRS will expect you not only to meet strict eligibility requirements but also to use all your available assets, including any equity in your home or in other assets, to pay what you owe. The IRS also will require strict compliance with the tax law for the next five years. That includes filing on time, not accruing more tax debt and making timely estimated tax payments.
I recommend working with a tax professional to determine eligibility and which strategy is right for solving your tax debt. For more information, check out our website at TaxationSolutions.net or call us at 888-930-1016 for a free consultation. LL