Trucking & Taxes – November 2023
It’s a common story. You filed your 2022 taxes and now owe the Internal Revenue Service thousands.
Multiple times this year, we’ve been told by truckers that they had a great 2022 and owe the IRS tens of thousands of dollars. To make matters worse, 2023 has been a down year.
First, let’s look at a few of the reasons someone might be in this position:
- Not making estimated tax payments
- Receiving poor tax advice or not following good tax advice
- Closing a trucking business and becoming a company driver
Another big contributor this year is using cash reserved for taxes on big repairs or other expenses. Truckers have had to deal with higher fuel prices, less revenue per load and decreased demand for freight – all factors that have forced many owner-operators to dip into their tax fund.
What happens when you owe the IRS?
It all starts with those dreaded letters from the IRS telling you to “pay now.” You must read all the notices you receive, which will detail what you owe and what penalties you’ll be incurring.
The first letter is the CP14 balance-due notice telling what you owe, along with penalties and interest. What follows is a series of collection letters. The CP501 individual balance-due notice informs you that the IRS is taking steps to collect the debt and explains the options to pay what you owe. If you don’t pay at this point, you’ll receive a CP503 individual balance-due notice, which gives an updated balance that includes more penalties and interest.
If the debt is still unpaid, the IRS will send a CP503 final balance-due notice. This is the notice of intent to levy, as well as the notice of your right to a hearing. If you still don’t respond or make a payment, the IRS will issue an LT11, which is a notice of intent to levy and the right to a hearing that is sent through certified mail.
If still necessary, the IRS will then send a CP504 intent-to-levy notice to remind you that you are subject to enforcement action that can include a levy on your bank account, garnishment of your wages or even a levy against your contract work. It also may file a federal tax lien.
Paying your debt
When it comes to paying what you owe, you have a number of options:
Get a loan
The cheapest option to pay off IRS debt often is to get a loan. Securing one will stop penalties and interest, as well as any liens, levies and garnishments. However, it’s not always possible to get a loan for this purpose, especially if the IRS has already applied liens. Another option may be to borrow against your 401(k) retirement fund.
Installment agreement
The IRS offers installment agreements you can apply for online. Your specific tax situation will determine which payment options are available to you. Payment options include full payment, a short-term payment plan (paying in 180 days or less) or a long-term payment plan.
Lower-pay installment agreements
Under some circumstances, you may qualify for a low-payment installment agreement. Installment payments sometimes will be reduced for a year or two, then increased.
Your financial situation will determine what you qualify for in terms of a payment reduction; thus, the IRS will require a financial statement in the form of a 433A as well as a 433B if you operate a business. Fill out the forms carefully, making sure your information is complete and accurate and includes all your assets and liabilities. When the IRS does its review, it will find anything you may think is hidden.
Partial-pay installment agreements
These are most often used when the IRS doesn’t have the full period of 10 years to collect your taxes and when your financial situation meets certain qualifications. Partial-pay agreements will require manager approval and possibly counsel approval, as well. So again, be very careful with how you fill out the 433A and 433B, making sure information is complete and accurate.
Non-collectible status
The IRS offers a non-collectible status, or hardship status, if your financial situation is such that there is no way to meet the IRS obligation along with basic financial needs. Determining whether you qualify for this status also requires filing the 433A and 433B. Depending on the debt amount, manager approval may be required.
Offer in compromise
This is the most complicated option and can be the best or the worst.
An OIC removes the debt but comes with compliance requirements. This means you’d need to be in complete compliance with taxes for the five years following the acceptance of an offer. Determining approval for this option also requires filing the 433A and 433B, along with form 656.
The 656 outlines all the rules and how much you could be paying, as well as a timeframe for payment. The OIC application goes through a complete review, which could take a while and requires an update of your financial situation. So if your income has increased by the time the review is complete, you could end up not qualifying for the OIC.
Be accurate in disclosing all assets, including retirement accounts, inheritances of land and even old vehicles. For an OIC, the IRS does a deep dive into your financial life and holdings. If the OIC is approved, it may go to a manager and to counsel, depending on the amount due.
Leave it to the experts
In all dealings with the IRS, you should consult an industry expert such as us at Trucker Tax Tools/Taxation Solutions, Inc. The experts in the industry know how to navigate and avoid pitfalls.
Once you hire an expert, you won’t need to deal with the IRS yourself. We take over, gather information from you and know how to present it in the best way to secure an approval. We also know the ins and outs of tax law and can give advice on how to change your financial situation in order to qualify for the best IRS program.
No matter how you choose to proceed, be sure to read IRS letters when you get them and then take action. LL