Friday, April 5, 2013

In the Red: How to File Taxes When You're Experiencing a Deficit


Senate Majority Leader Harry Reid, D-NV, declared in that the U.S. has a "voluntary tax system," because you can choose not to pay if you're willing to face government consequences. Though a small population of Americans have divested themselves from IRS codes, a vast majority will be certain to have their 1040 forms completed by April 15. The months leading up to tax day can be a stressful time for Americans needing to fulfill their civic duty, especially when they do not have enough money to pay Uncle Sam. Here is some advice that can help you get through tax season with as little stress as possible.

File For Extension

Contrary to what many believe, it is not a jailable offense if you cannot or do not pay what the IRS says you owe by the deadline. Instead, you can file IRS Form 4868, which is an application for an automatic extension of time. This extension can also be filed electronically with most tax preparation software. Keep in mind the extension of time is simply a way to tell the IRS you intend to pay, but cannot do so at the present time. Interest will accrue and penalties may be assessed. It is best to send in as much of what you owe as you can, along with the extension application.

Get Help

If filing on your own is completely over your head, there are tax experts and accountants at H&R Block, who can debunk the technical language and point you in the right direction. You could even have a refund coming to you that you didn't know about. Filers can access live support through H&R Block's online filing system.

Payment Plan

The IRS offers very flexible payment plans. An agreement can be entered online if your total bill, including penalties and interest, is less than $25,000. The interest rate on the plan is usually 3 percent. If your total bill is greater than $50,000, an IRS Form 9465 must be filled out, along with Federal Form 433-F, which is a statement of finances.

Offer In Compromise

Though TV ads will encourage you to retain a lawyer for this, an Offer in Compromise can be negotiated just between you and the IRS. An OIC will allow you to settle your tax debt for less than the total amount owed. An application and a fee must be submitted, along with a statement as to why the settlement should be accepted. These offers are rarely approved, but it's worth a try in certain situations.

Currently Not Collectible

There are some people who have no means of paying taxes or any other bills. A taxpayer can gather evidence consisting of proof of homelessness, extended unemployment, or other extenuating circumstances that show a complete inability to pay anything. The IRS can then declare the applicant "currently not collectible" (CNC) which will stop all garnishments, levies and other collections activity. CNC's will still receive a statement annually telling them what they owe. There is a statute of limitations on tax bills of 10 years. The amount owed will ultimately be erased if the CNC can stay in that status longer than 10 years.

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