People in Minnesota or elsewhere who work for themselves know paying income taxes falls solely on the filer and can often result in owing the federal government taxes every year. Even if you owe taxes and are unable to pay them in full it is important to still file on time as the penalties for not filing can make matters far worse. Failing to file a tax return can result in the IRS filing its own substitute return which may result in a higher tax debt than had you filed it yourself.
Substitute returns filed by the IRS do not include every deduction and credit that you may qualify for and they typically only include the earned income and one exemption that every taxpayer qualifies for. Ensuring you file your returns on time every year can alleviate a host of tax controversies and other disputes that could result in not only a higher tax bill but also interest and penalties as well as lost time in disputing the IRS returns' figures.
If you are unable to pay your tax debt in full, the IRS offers a number of ways in which to pay. A payment plan can be arranged or you can pursue a tax settlement. A payment plan can be affordable at as little as $25 per month, the minimum amount it will accept, and you simply need to contact the IRS to set one up. The entire balance must be paid in full by the filing deadline for the following year. If money is still owed and you owe even more tax debt the next year, your payment plan is considered void and you must contact the IRS again.
Next week's post will continue on the topic of IRS tax settlements, or "Offers in Compromise," as well as the consequences of not filing your returns or communicating with the IRS when you owe taxes.
Source: Yahoo Finance, "First Person: IRS Payment Plan vs. IRS Tax Settlement," S.L. Carroll, Feb. 7, 2013
Our Hennepin County law firm helps individuals address tax controversies and litigation as well as submit offers in compromise to the IRS that are based on an individual's ability to pay.