Episode 2: In this episode, Timalyn begins talking about what you should do if you've missed the tax filing deadline. This issue is more common than people would think. Okay, it happened. Now what? Let's listen to Timalyn, America's Favorite EA explain what you need to know and how to begin resolving this issue.
The first action item is to breathe. It's not the end of the world, but it's also not time to simply sit back and procrastinate even longer. Timalyn explains the importance of filing that return as soon as possible. There are many penalties including the failure to file penalty.
Failure to File Penalty
This is different from the failure to pay penalty. It's often overlooked. The IRS can assess a penalty of 5% of the outstanding tax debt, per month. The penalty can increase to a maximum of 25% of your outstanding tax liability. It can quickly add up. It's difficult to defend the fact that you didn't file. Again, it actually happened (or in this case, didn't happen).
Currently, the IRS has a backlog of 24.1 million returns. Just because you put your return in the mail, it may not count. You could file your taxes online (electronic filing) or if necessary, send your tax return via certified mail. If your return is sitting in that mountain of backlogged returns, the IRS may not count it as having been received. This could trigger the failure to file penalty.
There are some legitimate reasons for not filing your taxes on time. Timalyn explains there are "reasonable cause" justifications, but it's still something that is up to the IRS to accept or reject. For example, if you're a single person who was in the hospital during the tax deadline, you may be able to get the failure to file penalties either reduced or eliminated. This is referred to as abating the penalty.
As an enrolled agent, Timalyn is able to work directly with the IRS in defense of her taxpayer clients. She is an advocate who will formally request the penalty abatement. There are legitimate reasons, and the IRS may decide to accept them.
Tax Filing Extension
One option for an individual is to file a tax extension. This can get the taxpayer an additional 6 months to file his/her taxes. However, it's not automatic. You have to file for it. Importantly, it doesn't mean you don't have to pay. This is simply an extension for you to file at a later date. Filing for an extension can help you to avoid the failure to file penalty. Even so, you may still incur a failure to pay penalty.
Failure to Pay Penalty for Business Owners
For business owners, this is usually incurred because they are not on a standard payroll system and may not have done withholdings during the tax year. Business owners are responsible for making quarterly, estimated tax payments.
If a business owner has not made quarterly payments, he/she can be exposed to:
These compounding penalties can quickly, and effectively, increase your total tax liability. This is an important reason to consider tax planning.
Are You Receiving IRS Letters?
The IRS will send you a letter if you have failed to file. Even though the IRS may have your tax information from your employer, they don't have documentation of the deductions to which you are entitled. Timalyn explains why you don't want the IRS to file your return for you, called a Substitute For Return (SFR). If this happens, the SFR may significantly overstate your tax liability. The penalties would accrue based on this overstated balance. It is in your best interest to file your return, even if it's late.
The next IRS letter is a Notice of Tax Due and Demand of Payment. There could be multiple request for payment, before the IRS sends an Intent to Issue a Tax Lien letter. A federal tax lien alerts creditors know the IRS has a right to any money and assets you may have. The IRS can send a Lock-In letter to your employer requiring them to withhold and remit a portion of your paycheck. This is commonly referred to as a garnishment.
You Still Have Options
Even if you are receiving these letters, you have the option of contacting Timalyn Bowens for assistance with your tax issues. You need to take action before the situation worsens. Timalyn has created the Back Tax Negotiation Checklist. It's available on her website. It's a free download. You can also book a time to speak directly with Timalyn via her tax solutions website.
The key is to realize it's time to be proactive. Timalyn explains how negotiating with the IRS is a privilege, not a right. You have the right to present information designed to justify your tax deductions. But actively negotiating with the IRS is something an enrolled agent is licensed to do, on your behalf.
Timalyn talks with the IRS nearly every day, on behalf of her clients. She points out that people often don't realize what they are required to disclose to the IRS, and what they aren't required to disclose. This is an important factor she uses during negotiations. It can allow clients to take advantage of standard allowances available to them, if they only knew about them.
Establishing a Payment Plan
Once the negotiations have concluded, a payment plan may need to be established. Depending upon the amount of your outstanding tax liability, you may have the right to establish a guaranteed payment plan. The IRS can approve a 36-month payment plan, without filing a tax lien. Timalyn has an e-book available for taxpayers owing $10,000 or less. It will walk you through the specific steps to get this properly set up.
A streamlined agreement is another type of payment plan. This is for taxpayers owing $25,000 or less. You may be able to get up to 72-months to pay your existing tax liability.
It's important to remember there is a fee to set up the payment plans and interest continues to accrue on the balance.
Timalyn can also evaluate whether a taxpayer should consider filing a bankruptcy. She is not an attorney, but can determine what tax years are eligible for bankruptcy after pulling your transcript. Individuals should consult a bankruptcy attorney about the specific facts of their situations.
There is a partial-pay installment agreement. This is one of Timalyn's favorite options. It allows a taxpayer to make monthly payments to the IRS, but pay less than they owe because the tax bill expires before the end of the payment agreement.
Some taxpayers may be able to qualify for a step-up payment arrangement. Timalyn will file the paperwork for this arrangement. It may enable the taxpayer to make smaller installments until additional cash flow can be identified, such as for the payoff of another debt. At that point, the payment amount would increase.
Timalyn strongly encourages you to get your returns filed, even if they are filed after the tax deadline. Back taxes don't have to ruin your life.
As we conclude Episode 2, we'd like to encourage you to visit Timalyn's social media properties. You'll be able to subscribe to this podcast on Apple Podcasts, Google Podcasts, Spotify, and many other podcast platforms.
Remember, Timalyn Bowens is America's Favorite EA. She's here to fill the tax literacy gap, one taxpayer at a time. Thanks for listening to today's episode.
For more information about tax relief options, visit: https://www.americasfavoriteea.com/.
Disclaimer: This podcast is for informational and educational purposes only. It provides a framework and possible solutions for solving your tax problems, but it is not legally binding. Please consult your tax professional regarding your specific tax situation.
