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What to do when you owe taxes the IRS?

You might be gearing up for tax-filing season.

The US tax filing season begins on January 1 and continues until April 15, which is when the deadline for filing taxes. If this date falls on the weekend, the deadline will be moved to Monday.

The taxpayer can also benefit from early filing in order to collect all the papers and claim all the deductions.

The Internal Revenue Service (IRS), the agency responsible to administer federal tax laws as enacted through Congress, has three functions.

  • tax returns processing
  • Services to taxpayers
  • Enforcement

This publication by the IRS, Publication 509: The Tax Calendars, provides information about important dates for individuals as well as businesses. This is helpful for self-employed workers, freelancers, as well other business owners, who must file their returns according to a quarterly schedule.

Any returns filed later than this deadline will be subjected to penalties and interest. However, you have the option to request an extension that could be granted or denied based on certain criteria.

Many people are overwhelmed by fear and anxiety when they owe tax face the penalties, and even get charged.

WHY DO PEOPLE FAIL IN FILING THEIR TXES?

Recent data from 2020 US by IRS shows Americans owe more that $114 billion in back and penalty taxes, interest, and penalties.

They might not declare their income and owe taxes. This is despite the risk of being subject to harsh penalties, asset forfeiture, or even imprisonment. Tax evasion may be intentional or accidental.

This is different from tax avoidance. The legal route takes advantage of certain loopholes to reduce tax liability . Let’s explore some of the reasons that people fail to pay their taxes.

  • Simple mistakes like late filing or calculation errors are common.
  • Nefarious reasons could include failing to report taxable revenue.
  • Too busy to submit returns
  • Life-threatening circumstances like divorce, illness and job loss.
  • Lack of funds to pay taxes
  • Feel overwhelmed by the entire filing process.
  • Employers withhold less taxes from your paycheck.
  • It is possible that self-employed workers are unaware of their tax obligations.
    Tax laws and their exemptions are often misunderstood.
  • Income reporting is done by farms, sole proprietorships, and high-income groups.
    Other features of the administration system could also impact on the ability to avoid evasion.

PENALTIES.

You can face severe and serious penalties if you fail to pay your taxes. It can be equal to five percent or more of the unpaid amount per month, but not more than 25 percent.

If the IRS declares the failure to be deliberate fraud, the five percentage can go up to fifteen percent per mois.

If you file returns longer than 60 calendar days after the last filing or extended due date the minimum penalty is equal to the lesser of $210 and 100 percent of unpaid tax. The penalty can be significantly increased by the addition of interest accruals.

Notifications issued by IRS can change rates. There are more that 150 penalties that IRS lists on its website.

PENALTY ABATEMENT

This list of reasons for penalty abatement may be used:

  • Clear explanations of statutory exceptions are required, such a disaster relief or combatzone relief.
  • Relying on IRS’s oral/documented advice is a mistake that can be difficult to prove.
  • Valid reasons could include specific facts and circumstances or incorrect software. You must show that you exercised due caution and prudence.
  • Administrative relief such as the first time penalty abatement, FTA, is the easiest.

Most people do not know of these options and may choose to ignore them. These options allow the IRS to reduce penalties or remove penalty for those who meet the eligibility criteria.

 

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