Are Delinquent Taxes Keeping You Awake at Night?
If you're a Long Island, NY resident dealing with IRS tax problems, we understand the stress and anxiety it can bring. Delinquent taxes can lead to a host of financial and legal issues.
Don't Face the IRS Alone
What are Delinquent Taxes?
Delinquent taxes are taxes owed to the IRS that you have not paid. They occur when you miss the filing and/or payment deadline. Ignoring your unpaid taxes can lead to severe consequences, including:
Penalties and Interest: Additional fees and interest will be added to your original tax debt, increasing the amount you owe. These penalties can range from 0.5% to 25% of your unpaid taxes, depending on the duration of delinquency.
Tax Liens: If you have unpaid taxes for an extended period, the IRS can place a lien on your property, including your home and other possessions. A tax lien is a legal claim against your assets and can negatively impact your credit score.
Wage Garnishments: The IRS can also garnish your wages or salary to collect the unpaid taxes. This means a portion of your earnings will be withheld until your debt is paid off, making it challenging for you to cover living expenses.
Bank Levy: The IRS can take money directly from your bank account to cover your unpaid taxes, which can leave you unable to access your funds.
Seizure of Assets: In extreme cases, the IRS can seize your assets, such as vehicles or real estate, to satisfy your tax debt.
What About Penalties & Interest?
The IRS imposes penalties and interest on any unpaid taxes to encourage timely and complete tax payments. These added costs can significantly increase your tax debt over time, making it even more challenging to pay off. It's crucial to address delinquent taxes as soon as possible to avoid accruing additional penalties and interest.
Penalties: The IRS can charge multiple penalties for late filing and late payment, which can add up quickly. The failure-to-file penalty is generally more severe than the failure-to-pay penalty, emphasizing the importance of filing your tax return on time, even if you can't pay the full amount owed.
Interest: In addition to penalties, the IRS also charges interest on unpaid taxes. The interest rate is determined quarterly and is compounded daily, meaning the amount you owe can grow rapidly the longer it remains unpaid.
Penalties and interest on unpaid taxes accumulate in a compounding manner, further exacerbating the financial burden on taxpayers. When taxes are not paid by the deadline, the IRS imposes an immediate failure-to-pay penalty, which is a percentage of the unpaid taxes. This penalty increases monthly until it reaches the maximum cap or until the tax is paid in full. Concurrently, interest begins to accrue from the due date of the tax until the amount owed is completely paid off. This interest is calculated based on the federal short-term rate, plus 3%, and is compounded daily.
The combination of these penalties and the compounding interest can quickly escalate the initial amount owed, creating a daunting financial obstacle for many taxpayers. To avoid the snowball effect of these charges, addressing tax debts as soon as they are recognized is crucial.
What are the Causes?
There are various reasons why you may have delinquent taxes, such as:
Financial Hardship: Job loss, medical emergencies, or other unexpected financial burdens can make it challenging to meet tax obligations.
Incorrect Withholdings: If you have incorrect tax withholdings on your paychecks or income, it can result in a higher tax bill at the end of the year.
Self-Employment Taxes: As a self-employed
Unemployment or Reduced Income: If you have experienced a job loss or reduction in income, it can make it difficult to keep up with tax payments.
Medical Expenses: Unexpected medical bills can put a strain on your finances, making it challenging to pay your taxes on time.
Tax Law Changes: Tax laws are constantly changing, and it can be challenging to keep up with them. This can lead to unintentional errors on your tax return, resulting in unpaid taxes.
Financial Hardship: In some cases, individuals may experience financial hardship that prevents them from paying their taxes. This can include a significant life event such as a divorce or the death of a family member.
What Can You Do if You Have Delinquent Taxes?
If you owe delinquent taxes, it's essential to take action as soon as possible. Here are some steps you can take:
File Your Taxes: If you haven't already, file your tax return as soon as possible. Even if you can't pay the full amount owed, it's better to file and set up a payment plan than face potential penalties for not filing.
Pay What You Can: If possible, pay as much of your tax debt as you can to reduce the amount of interest and penalties that will accrue.
Set Up a Payment Plan: You may be able to set up an installment agreement with the IRS to make monthly payments towards your tax debt. Keep in mind that interest and penalties will continue to accumulate until the debt is paid off.
Consider an Offer in Compromise: In some cases, the IRS may accept a settlement for less than the full amount owed through an offer in compromise. This option requires extensive financial documentation and proof that you are unable to pay your tax debt in full.
Seek Professional Help: Dealing with delinquent taxes can be overwhelming, but a tax professional can help guide you through the process and explore potential options for resolving your tax debt.