Tax debt problems are quite common, but often come about in predictable ways. What begins as a minor financial issue can become a debt-spiral that continues to get worse over time.
The following four situations commonly cause IRS tax debt problems for many taxpayers.
Unfiled Tax Returns
Unfiled tax returns can lead to serious tax issues. You don’t know how much you owe because you don’t file your return, and you may have entirely forgotten you owe the IRS money by the time the IRS starts sending you notices.
Even worse, the IRS may file a return on your behalf that doesn’t give you any deductions. If you have several years of unfiled returns, you could accumulate a large balance of back taxes, penalties, and interest.
The IRS will also insist you file all delinquent tax returns before your installment agreement or Offer in Compromise is accepted.
Failing to meet other tax filing requirements can also cause tax problems. One example is a failure to file Foreign Bank Account Reports, which can result in penalties of $10,000 or more.
Failure to Pay Estimated Taxes
It’s generally easier for self-employed taxpayers to fall behind on their taxes. That’s because they are responsible for paying their own estimated taxes.
If you forget to pay or use the tax money for something else, you’ll owe a big tax bill when you file your return, along with underpayment penalties and interest.
Adjustments to Your Tax Return
The IRS may adjust amounts on your return based on informational tax forms (W-2s, etc.) or information discovered during an IRS tax audit. If this results in a significant additional tax liability, it could quickly become a major problem.
The IRS can generally audit your last three years of tax returns, but can go back six years in some cases. Several years of audits could lead to a massive tax liability being added to your balance.
Unexpected Financial Problems
Divorce, serious illness or disability, unemployment, or other financial problems can lead to tax debt problems. You may feel you have no choice but use to the money you set aside for taxes to pay off other debts.
The good news is that some tax resolution options offer flexible terms for taxpayers experiencing a financial hardship. Before you declare bankruptcy or use other debt management options, talk to a tax resolution attorney to determine the best course of action.
The Gartzman Law Firm offers tax settlement help for both federal and state tax debt. Use our contact form to request a consultation with an Atlanta tax resolution attorney.