If you don't pay your taxes in full when you file your tax return, you'll receive a bill for the amount you owe. This bill begins the collection process, which continues until your account is satisfied or until the IRS no longer legally collects the tax; for example, when the collection deadline or period expires. You may be wondering if you need to file your return if you can't pay your tax bill. However, this is the most important thing.
You must file your return or an extension to avoid failing to file a fine. This penalty is equivalent to 5% of the outstanding balance, per month or part of a month, up to a maximum of 25% of unpaid taxes. The IRS will provide taxpayers with up to 120 days to pay their full tax balance. Back taxes are simply money you owe to the Internal Revenue Service.
When you don't pay your taxes or pay the wrong amount, you owe “back taxes.” If you remain unpaid, you have a “tax debt” that the IRS will attempt to collect. Unfortunately, the IRS will charge you interest and penalties for any amount you pay after the deadline. Like the balance due on a credit card, these charges will make it difficult to pay what you owe. If you discover that you have a debt to the Internal Revenue Service (IRS) when preparing your tax return, you shouldn't panic.
He entered all of his information on his annual income tax return and found that he owes the Internal Revenue Service not just an amount, but more than he can afford. If you're owed a refund in a later tax year while you're on the plan, the IRS can subtract those payments from what you owe. A recurring payment option allows you to pay six or more installments within 24 months after the offer is approved by the IRS; however, you must include the first payment in the request. This extension only gives you more time to file your documents; it doesn't give you more time to pay what you owe.
However, if you apply online, you can only apply for up to 120 days, while if you request it by phone or mail, the IRS can grant you up to 180 days. The only time this actually happens is if you can prove that you were the spouse of someone who owes back taxes, but you weren't aware of it. If you had a good reason why you didn't apply or didn't pay what you owed when you filed, you can request a reduction in the fine. However, you will continue to owe a penalty for non-payment for outstanding taxes, equivalent to 0.5% of the balance.
You're supposed to pay income taxes gradually throughout the year so that in April you don't owe much or are even entitled to a refund of overpaid taxes. An offer of commitment (OIC) is an IRS program that allows taxpayers to settle their outstanding debts for less than what they owe. Basically, if you let an entire fiscal year go by without paying the IRS what you owe, they're considered “back taxes.” A transaction offer (OIC) allows you to offer a smaller amount to the IRS and, if approved, the IRS will forgive the remaining balance. However, higher credit card balances could adversely affect your credit score, and paying with credit may not be appropriate for people with unmanageable credit card debt.
Innocent Spouse Relief is the IRS's rare assignment that you don't owe taxes you initially thought you were in trouble.