If you had to guess the maximum financial penalty you could face for failing to pay your taxes, then what would you say? Five percent of your unpaid taxes? Ten percent?  Believe it or not, the highest penalty you could face if you fail to pay your taxes in time is a whopping 47.5%! That’s the least of your worries, though. On top of that, tax evasion is a crime. If you intentionally attempted to evade a tax assessment, then you could face up to five years in jail if you get convicted. You could face an entire year in jail for each year that you failed to file a tax return. The good news is the IRS rarely issues such harsh penalties. For the most part, they just want you to pay what you owe.  Are you wondering how to reduce IRS penalties so that you can afford to pay back your tax debt? If so, keep reading. You can learn everything you need to know about how to get out of IRS penalties below.

How to Get the IRS to Remove Penalties and Interest Debt

When was the last time you filed your taxes? Do you take the time to verify that your returns are error-free every year? If you had to think hard on either of these two questions, then there’s a good chance that you could owe the IRS money due to unfiled returns or unpaid taxes. When you’re late on your taxes, the IRS has the authority to issue fines against you. These fines are no laughing matter, either. At minimum, you’ll be charged a 5% interest fee on your entire tax bill for each year you’re late. The IRS has a lot of authority to penalize you in other ways, too, so it’s a good idea to get informed on the consequences of not filing taxes if you know that you owe back taxes or haven’t filed in a few years. Knowing that you’ll likely owe even more money in the form of IRS penalties and interest fees can discourage you from filing at all. You’re likely asking yourself, Can I get the IRS to waive penalties and interest fees?  The short answer is most likely. The long answer is that it depends on the actions you take right now. Next, we’ll give you an overview of the best steps to take to help you reconcile your tax debt and get penalties and interest debt removed from your account.

Determining How Much You Owe

You’ll never be able to tackle your tax debt if you never face it head-on. Your first step, then, involves determining how much you owe in back taxes. Before you get in touch with the IRS, do a little research on your own. Try to estimate how much income you earned in the years you didn’t file, and then try to estimate how much taxes you owed that year.  If you’re struggling with estimating your taxes, it may be time to discuss your situation with a tax professional. If you reach out to the IRS about your account, then they may re-initiate collection methods.

Filing Tax Returns for Previous Years

Once you’ve got a good idea of how much you owe, it’s time to get squared up with the IRS. You’ll need to file your tax returns for all the previous years you’ve missed out on. It’s crucial to enlist the help of a tax professional during this step, because tax laws are always changing. The deductions or credits you can claim from years past may not be the same as they are today. You’ll have a better shot at maximizing your return if you get a professional to help.

Negotiating Your Tax Debt

Once the IRS processes your returns, you’ll likely receive a hefty tax bill. First, review this tax bill thoroughly. Verify that all the information on the bill is accurate. Then, go through and review how much of your bill is from tax penalties and interest. If you can pay off the entirety of your bill, then it’s advised that you do so. More than likely, though, you’ll need to negotiate with the IRS to create a payment plan that works for you. Depending on your situation, you may be able to apply for tax debt relief programs that reduce or eliminate your tax bill altogether. If you’re interested in learning more about these programs, then reach out to one of our tax experts today.

How to Get the IRS to Remove Penalties and Interest on Back Taxes

If you want to remove IRS penalties from your account, then your best option is to apply for IRS penalty abatement. This action potentially gets all of your penalties and interest removed from your tax debt. In rare situations, you could even have some of your interest or penalty payments refunded to you. It’s no easy feat to qualify for penalty abatement, though. First, you need to prove that you had reasonable cause for not paying your taxes on time. “I didn’t have the money” isn’t considered a reasonable cause. You’ll need to prove that you experienced a hardship, like an inability to obtain your records, a death in the family, or a severe illness in the family. It’s advised that you speak with a tax consultant to determine if you’re eligible for penalty abatement with the IRS if you own a significant amount of tax debt.

The Number One Way to Avoid IRS Penalties in the Future

Getting the IRS to eliminate your penalties for non-payment or late payment is a hassle. The best way to avoid IRS penalties in the future is to ensure that you get your taxes filed every year on time. You also want to do your best to avoid making errors on your returns. So, how can you ensure that your taxes are error-free? We suggest using a bookkeeping service to help you record your transactions all year long. Doing so will help ensure that your taxes are correct and easy to file once Tax Day arrives.

Are You Ready to Solve Your Tax Problems?

Have you been avoiding filing your taxes because you’re afraid you won’t be able to afford the bill? Are you simply not sure how to cope with excessive penalties levied against you by the IRS? Our certified tax consultants can help answer your questions, guide you through filing your taxes, and help you find solutions to your tax problems. If you’re ready to make a change in 2021, then let our experts help. Leave your contact information on our online form now to get started on making a change.

A whopping 65% of Americans own their own homes. The remainder either rent, live with family members, or suffer from homelessness. If you haven’t become a homeowner, then you likely have your reasons. Are you currently not pursuing home ownership because you’re uncertain about your tax status? Have you found yourself wondering, If I owe taxes, can I still buy a house? The last thing you want to do is invest in a home only to have to forfeit it to the IRS.  Thankfully, you don’t have to! If you’re interested in learning more about buying a house with IRS debt, then you’ve come to the right place. Read on to learn everything you need to know about becoming a homeowner, even if you owe back taxes.

Can You Buy a House if You Owe Taxes?

 

The American Dream often involves homeownership, so if you’re getting older, you’re likely considering whether now is the right time to buy a home. But, there’s just one problem. You haven’t paid your taxes over the past few years, and you do owe a significant amount of back taxes to the IRS. Can you still buy a house? The short answer is yes. It will take some hard work on your part, though, and the road won’t be as straightforward as it will be for someone who doesn’t owe money in back taxes. You’ll need to first learn about and understand the real consequences of not paying taxes. Depending on how long it has been since you filed or how much you owe, the IRS could already have started pursuing collection actions. If you don’t have any assets, then you might not realize that you could already have a tax levy against you. A tax levy is legal permission for the IRS to seize your assets or property to settle a tax debt. If you’ve received a “Final Notice of Intent to Levy” document in the mail, then the IRS likely already has this legal measure in place. If you are in this situation or you’re not sure about your tax levy status, it’s crucial that you speak with a tax expert ASAP. If you do end up securing a home without attempting to settle your tax debt situation with the IRS, then the IRS could utilize their tax levy to take it away from you. You might also already be facing significant IRS penalties, like wage garnishment, which can make it harder to buy your home. If you’re struggling under the weight of collection efforts but want to buy a home, then you do have options. Get more details about how you can move forward with your homebuying aspirations even while you still owe back taxes below.

Your Guide to Buying a House With Back Owed Taxes

So, what should you do if you want to buy a home but you’re unsure about your tax situation? If you’re not sure whether you owe taxes or how much you owe, then your first step is to identify where you fell short. You may need to get in contact with the IRS to determine what years you didn’t file for or what years have errors. You’ll need to rectify those errors by filing the correct tax returns for each year you missed. The IRS will accept your forms, process them, and then let you know how much you still owe. Your best option at this point is to completely pay off your back taxes, but this usually isn’t an option for most Americans. After all, if you had the money to pay off your tax debt, then you probably would have when they were originally due! Don’t panic. There are plenty of options for you if you can’t pay off your tax debt right away. The IRS will work with you as long as you prove that you’re not intentionally avoiding paying your taxes. Not taking any action at all, though, could be viewed as evasive. If the government suspects you’re willingly avoiding paying your taxes while you have the means to do so, then they will likely take action against you.  That’s why you need to work with the IRS to come up with a tax debt negotiation that works for both parties. We’ll get into more detail about that below. Remember, once you initiate contact with the IRS, they’ll be looking into your accounts. Depending on how much time has passed since you last filed your taxes, the IRS may have stopped attempting to collect from you. Once they have your current contact information, things might change. To avoid getting hit with collection efforts, criminal charges, or other penalties, it’s advised that you speak with a tax professional about your situation before you get in touch with the IRS.

How to Tackle Your Tax Debt Before Buying a House

So, how can you tackle your tax debt and start to buy your own home? Both are possible! You don’t have to pay off all your debt to qualify for a home loan. You also don’t have to pay off all your debt to avoid penalties, criminal charges, or collection efforts. All you need to do is show the IRS that you aren’t willingly avoiding your tax bill. Here are the most common tax debt negotiation methods Americans utilize when they don’t have money to pay their tax debt right away:

• Installment Agreements
• Currently Non-Collectible (CNC)
• Offer in Compromise (OIC)
• Innocent Spouse Relief
• Negotiation by Default

Often, the best solution is to enter into an installment agreement with the IRS. An installment agreement is like a payment plan between you and the IRS. You pay down your tax debt each month, and in exchange, the IRS won’t pursue collection efforts or criminal charges against you for your debt. An Offer in Compromise could help you pay less than what you owe through a reduced payment plan. The IRS must determine that you’re experiencing financial hardship, though. You could also get filed under Currently Non-Collectible status if you can prove that you really can’t pay off your tax debt. Did you know that you could also have your tax debt disappear through Negotiation by Default? There is a statute of limitations on tax debt, which is usually 10 years from the date your tax debt was originally assessed. If enough time passes without the IRS taking action, then you could end up not owing the IRS anything! If you believe you may have tax debt that has already expired, it’s wise to consult with a tax professional to ensure that’s the case.

Are You Considering Buying a House When You Owe the IRS?

If you owe the IRS money in back taxes, then you’re in good company. Right now, a whopping 11.23 million Americans are in the same position that you are. Despite that, many of them own their own homes or plan on purchasing one in the coming years. How is that possible? So long as you’re actively working on reducing your tax debt, the IRS will work with you, too. Keep in mind that there’s no benefit to penalizing you if the IRS knows they won’t be able to collect what you owe. Instead, they have an incentive to help keep you on your feet and working so that you can continue to be a source of revenue for them no matter how small. Are you getting ready to buy a house while owing the IRS back taxes? You don’t have to face this situation alone. The experts at Tax Group Center specialize in providing affordable solutions to individuals who owe the IRS. Our tax attorneys, CPAs, and certified tax consultants will work together with you to create a customized tax debt plan that works for both you and the IRS. Are you ready to get started? Leave your name, email address, and phone number on our online form now to hear back from one of our agents as soon as possible.

What does owing back taxes really mean for your finances? Nobody wants to get a letter from the IRS about back taxes, but trying to close your eyes until it all goes away will make things much worse. As a taxpayer, you should know that the IRS offers many tax relief options that will get you on the road to back tax forgiveness. 

Don’t let the burden of owing the IRS money stifle your financial plans or peace of mind for one more day. The first step in figuring out how to get rid of back taxes is finding out how much you owe the IRS.

How to Find Out How Much You Owe the IRS

The IRS allows you to make an online account to view what you owe. You can also use your account to apply for a tax payment plan as one of your debt relief options. Setting up this account can be a little overwhelming due to the breadth of information the IRS requires. If you’re unsure about how to make first contact with the IRS, you can bring in a tax pro with experience in this arena to help you get it done.

What Are the Tax Relief Options When You Owe Money to the IRS?

There are several ways to reduce back taxes. If possible, pay the full lump sum that you owe right away. This is the simplest way to put a stop to the IRS’s pursuit of your back taxes. Don’t let unfiled returns stop you from paying what you owe; it’s essential to file all missing returns even if you can’t make a full lump payment right now. The IRS won’t work with you on back tax relief if you have any unfiled returns. Not filing your taxes is not a way to hide from the IRS. They use other sources to determine how much you owe even if you never file a return.

Installment Agreement (IA)

The most common option for tax relief is a payment plan. With the IRS, a payment plan takes the form of something called an IRS Installment Agreement (IA) that chops your total tax debt into smaller payments over 72 months. In addition to making your payments more realistic, an IRS IA pauses all penalties and interest as long as you’re staying current with payments. The IRS will generally not enforce collections as long as a payment plan is in place. However, if you default on a payment, the IRS will subject you to all of the previously held-back interest and penalties.

Offer in Compromise (OIC)

An IRS Offer in Compromise (OIC) is a settlement for taxpayers who cannot pay the full amount owed in back taxes. With this settlement, a taxpayer makes an offer to the IRS based on how much they can afford to pay. The IRS will either accept or reject the offer based on the financial details of the taxpayer. The IRS can be very restrictive when it comes to qualifications for this type of settlement. As a result, most taxpayers who are serious about being qualified for OICs work with tax experts who are familiar with the IRS to present offers that are more likely to be accepted. It’s also important to comply with all of the IRS’s requirements when submitting your application and financial records.

Currently Not Collectible (CNC)

If you’re under extreme financial hardship, you may be able to petition the IRS for Currently Not Collectible (CNC) status. With this agreement, the IRS will defer your debt obligation until you can begin making payments. You will be free from worries of having penalties, interest, fees, levies, and wage garnishments as long as you are under CNC status. 

Some situations where you might qualify for CNC relief include being on Social Security benefits, being unemployed, or having little to no money left over at the end of each month after covering your basic living expenses. The IRS will check back on your status periodically once a CNC “closing code” has been placed on your record to see if you’re in the position to make payments. 

While the IRS may not necessarily ask you to pay all at once if your income grows, they may ask you to begin an Installment Agreement. In some cases, a taxpayer may never pay the back taxes owed because the statute of limitations kicks in before their financial situation changes. While only a small number of people qualify for Currently Not Collectable status with the IRS each year, talking to a tax professional can help you gauge your likelihood of being approved for back tax forgiveness.

Penalty Abatement

Many taxpayers don’t realize that they can have penalties forgiven under certain circumstances. While the IRS does slap on penalties and interest if you’ve failed to file or pay taxes, they aren’t necessarily permanent. You may be able to have penalties removed if this is the first time you’ve failed to file taxes on time. Additionally, the IRS may remove penalties if you had a good reason for not filing your taxes when you should have. While being “too busy” is not a valid excuse, things like illnesses or natural disasters are.

How Can Tax Group Center Help You?

While the IRS may seem intimidating, you can rest assured that the agency’s goal is to collect as much of what you owe as possible. This is why the IRS is surprisingly generous when it comes to options for tax forgiveness. Sitting down with a tax expert to determine which relief option will provide the best back taxes help is the fastest way to enjoy the highest level of tax forgiveness available for you.

If you’re wondering how to get rid of back taxes, the Tax Group Center team can help you work out a plan to reduce penalties and interest while getting back on the road to a clear financial future. When looking at your situation, we’ll consider factors like an upcoming statute of limitation, your income situation, and the total debt you owe to determine the option that will leave you in the best shape. 

While not everyone will qualify for every type of relief, almost all taxpayers are at least in the position to work out payment plans with the IRS. The first step may be as simple as getting all caught up with unfiled returns from previous years. Our team understands tax relief options from top to bottom because we’ve been working with the IRS on behalf of our clients for more than 30 years. Let us walk you through the terms of all of the different tax relief options on the table. Contact Tax Group Center today for a consultation.

If You Owe the IRS, Can You Buy a House?

Are your dreams of owning a home dashed if you have tax problems? The answer can depend on your particular situation. The short answer is that owing the IRS money won’t automatically prevent you from qualifying for a home loan; a tax debt doesn’t equal a blanket rejection for a mortgage application. 

That doesn’t mean that you should ignore a tax debt! Things like missing tax returns and liens throw up some serious red flags for loan officers. While your lender’s terms and policies will ultimately determine your eligibility for a home loan, a negative tax situation will likely hinder you from owning a home. Take a look at what might be in store if you’re trying to get a mortgage without first getting everything squared away with the IRS.

Your First Obstacle to Being Approved for a Home Loan 

If you’re asking yourself, “Can I get a mortgage with unfiled taxes?” then you should keep reading. 

You might not get very far with the mortgage application process if you have unfiled tax returns in your recent history. Generally, lenders request W-2 forms going back at least two years when approving home loans. Lenders use your tax returns to verify your income as part of the application process. They need proof that you have consistently earned enough in recent years to fulfill your monthly mortgage payments for a particular home. Unfortunately, providing recent W-2 returns verifying your income becomes impossible to do if you haven’t filed your taxes. From the lender’s perspective, this is a big red flag.

Many lenders can’t provide you with a home loan if you cannot verify your annual income. That means you’re stuck until you prepare and file all unfiled tax returns. The good news is that this is generally very easy to do. There’s no need to be afraid of the IRS if you skipped a year of filing. They just want you to get current with your taxes. You may even finally get a tax refund to help build up your down payment for a house once you file. 

If you’ve been hesitating to file because you fear that you owe money to the IRS, filing is the first step to obtaining access to tax relief solutions that will help you clear your debt while avoiding interest and penalties. What’s more, being in a payment plan with the IRS to pay down a tax debt won’t automatically disqualify you from being approved for a mortgage.

Getting a Tax Lien Mortgage

If the IRS has placed a tax lien on your property due to unpaid taxes, getting a new mortgage becomes even more challenging. You’ll need to get that lien handled before being approved for a mortgage in nearly all cases. Owing taxes and having a lien are two very different circumstances from a mortgage loan officer’s perspective. In some cases, even if you have a tax lien, mortgage approval is possible if you’re currently on a repayment plan with the IRS. Mortgage lenders will need to see that you’ve been making consistent payments for a specific length of time before they’ll even consider working with you. What’s more, lenders may examine your application to ensure that you can manage potential mortgage payments at the same time as your lien payments. Lenders will often fold your monthly tax repayment into your debt-to-income ratio to make sure that you’re realistically capable of staying current with your mortgage to avoid foreclosure.

Be prepared to show lenders that you have a valid, current payment plan agreement with the IRS if you’re trying to obtain a mortgage while owing the IRS money. This may be your only path for getting a loan if you are not current with your tax payments. Most lenders will apply a special manual underwriting process for your loan if you’re making payments to the IRS.

The IRS Isn’t Your Only Concern

Can you buy a house if you owe taxes to the state? Liens are just one of the consequences of not paying your state taxes. Unfiled and unpaid state taxes can harm your chances of obtaining a mortgage just as much as IRS debt.

Can You Buy a House If You Owe Taxes?

It’s important to look beyond just eking by with the bare minimum when applying for a home loan. If you’re wondering, Can I get a mortgage with unfiled taxes? Then you should know it’s very possible. But failing to address your underlying debt with the IRS or state taxing authorities doesn’t put you in the best spot for negotiating favorable loan terms. 

If you’re allowing tax problems to cloud your record instead of taking advantage of options for IRS debt relief, you’re setting yourself up for a high interest rate. The big worry with this is that you’ll potentially end up paying tens of thousands of dollars more in pure interest than you should over the life of your mortgage. A lower interest rate with better terms increases your buying power to put you in a much better financial position as a buyer.

What’s the Plan If You Are Trying to Buy a Home With IRS Debt?

If you’re gearing up to buy a home, the time to address unfiled or unpaid taxes is now. The necessary steps will depend on where you stand with your ability to pay what you owe. The type of loan you’ll be applying for will also impact how to approach the application process. However, this is the general blueprint to follow when trying to obtain a mortgage with tax problems:

• Work with a tax professional to enter into a repayment plan with the IRS. Make sure to get a copy of the repayment agreement that details what your monthly payment amount will total. You may need to provide this documentation to your lender.
• Next, focus on making payments on time. Most lenders require between three and 12 consecutive payments on your record before they approve you for a mortgage.
• When applying for mortgages, inform your lender about the agreement that is in place. The lender may ask for a copy of your tax repayment agreement with proof of payment attached.
• If you’re applying for a mortgage but have a tax lien, you may need to obtain something called a Subordination Agreement from the IRS. This document confirms that the IRS’s lien will be secondary to the lien placed on your home by the mortgage company in the event of a foreclosure.
  
  

The dream of homeownership is not out of your grasp if you owe the IRS taxes, but allowing tax debts or unfiled returns to linger does make qualifying for a mortgage harder. Addressing tax problems as soon as possible is going to get you on track to being approved for a home loan. Ultimately, you will be in much better shape to afford a home once you’re able to get IRS penalties and interest out of the picture. However, the IRS won’t give you the opportunity to settle or pay off debts if you don’t reach out to ask for assistance.

If you’re hoping to come back strong from a tax issue to get approved for a home, Tax Group Center is in your corner. In many cases, the first step is simply finding out how much you owe in taxes. Getting that figure in your hands will help you get a realistic idea of how far away you are from getting approved for a home. Once we help you see where you are with tax debt, we’ll work on your behalf to establish debt forgiveness or installment agreements. Contact Tax Group Center today for a consultation.

Do you want to know if you owe the IRS money? You actually don’t have to wait until you receive a letter from the IRS to figure out your IRS tax balance, because all taxpayers have the right to look at their balances directly. The IRS provides four options for doing this:

• Check your balance online.
• Check your balance over the phone.
• Send a request for a balance report by mail.
• Have a tax expert get the information for you.

Each option has its own set of pros and cons. What’s more, you’ll need to be prepared to make your request during specific windows of availability for some of the options. 

Let’s take a deeper look at how to check your IRS balance using these four options.

Option 1: Check Your Balance Online

The IRS hosts an ultra-convenient portal that taxpayers can use to view their IRS account details online. In addition to displaying your IRS account balance for owed taxes, the portal also gives you access to your payment history going back 24 months as well as your past years’ tax transcripts. While this resource is free, you do have to go through a setup process that can take time. 

The IRS requires you to provide a full roster of information to verify your identity, including your Social Security number (or Individual Tax Identification Number), date of birth, mailing address for your last return, email, and cell phone number. They’ll also ask for information about your credit cards, loans, mortgage, and more. 

Another hindrance that goes along with this option is that the IRS only makes this portal accessible during certain windows of the day (Monday: 6 a.m. to Saturday 9 p.m./Sunday: 10 a.m. to 12 a.m.). You may also find that the site is down for routine maintenance pretty frequently. This can be tough if the only time you have to sit down to try to figure out your IRS account balance is in the evenings following work. 

Option 2: Call the IRS

Yes, the IRS will pick up the phone for taxpayers! This can be a good option if you feel uncomfortable about supplying so much personal information through an online portal. Just remember that it’s typical to experience wait times of up to 30 minutes when you call the IRS to check your balance. In addition, the line has limited hours that last from 7 a.m. through 7 p.m. local time.

Number for individuals: 1-800-829-1040

Number for businesses: 1-800-829-4933

Number to request transcript by mail: 1-800-908-9946

Option 3: Make a Request by Mail

If putting in the time to set up an account online or waiting on the phone won’t work for you, you can send a mail request to the IRS. This is unsurprisingly the slowest option, so bear that in mind if you’re worried about interest and penalties being pinned to your IRS balance while you wait for documents to arrive in the mail. The IRS won’t waive penalties just because you were waiting to hear back about your balance. You’ll also need to verify that the IRS has your current address because the documents won’t get to you if there’s an older address on your file.

It’s also important to know exactly what you’re requesting when you make a “snail mail” request for your IRS account balance. If you filed a 1040, 1040A, or 1040EZ, you’ll want a document called the “Tax Transcript.” Anyone who filed another type of tax form will need to ask for something called the “4506-T Request for Transcript of Tax Return.” One of the more confusing aspects of this is that a transcript only covers one year. Additionally, penalties and interest may not show up on this transcript.

4. Have a Tax Professional Retrieve Your Balance for You

If you’re feeling intimidated about reaching out to the IRS, you’re not alone! Many people prefer to avoid making contact with the IRS on their own because they’re generally unfamiliar with how the IRS works. Others simply don’t have the time to deal with creating an account or waiting on hold for an IRS representative.

When you put the task in the hands of a tax professional, they will reach out to the IRS to retrieve your balance information. The big benefit of doing this is that you already have someone working with you who can provide guidance if it turns out you owe the IRS money. If this is the case, a tax professional specializing in debt relief will be able to introduce you to some relief solutions that will potentially allow you to get debt managed without penalties and interest.

What to Do When You Owe the IRS Money That You Can’t Pay

You may discover that your IRS balance is at $0 after getting access to your balance information. If this is the case, you should be all set! The only exception is if you requested a paper transcript by mail, because penalties and fees aren’t always represented on those documents. That means that a small amount of unpaid fees could technically become an “unpaid tax debt.” If this is a concern, you can have a tax professional look into the situation for you to confirm that you don’t owe anything more to the IRS.

If you do have a balance, the best course of action is to pay it off. If you can’t pay the balance in full, it’s time to explore options for debt relief through the IRS Fresh Start initiative. The most common form of IRS debt relief is an Installment Agreement (IA) that allows you to pay off your balance over six years (72 months). You may be able to freeze or reduce your balance using options like an Offer in Compromise (OIC) or Currently Non Collectible (CNC) status if you can prove that you’re financially unable to meet your debt obligation.

The one thing you don’t want to do after discovering that you have an IRS balance is to ignore it. The IRS will assign fees, interest, and penalties if your balance remains unpaid. This will eventually lead to liens and levies that give the IRS the right to seize wages, bank accounts, and assets from you in an attempt to settle your debt.

Work on a Tax Settlement for Your IRS Balance

You need a clear picture of what you owe before the IRS begins sending you letters about penalties and collection efforts. You can begin the process of finding out your balance today using the tools available from the IRS. For many taxpayers, the easiest way to get the clearest answer is simply to have a tax professional request a balance report on their behalf.

If you do owe the IRS money, it’s important to get plans in motion for seeking a tax settlement as quickly as possible to avoid IRS penalties. Your IRS balance can grow substantially if you allow the payment deadline to go by without entering into some type of installment agreement or forgiveness plan with the IRS.

At Tax Group Center, we help taxpayers understand their tax balances and how to best pay them off. If you already have a payment plan, we can also help you find your IRS payment plan balance. If you have unfiled tax returns that are preventing you from being eligible for tax relief, we can help you get that taken care of before applying for IRS Fresh Start options. Our tax lawyers have been helping clients work with the IRS to settle tax debts for 30 years. Let us help you get your IRS balance squared away if lingering tax debt is causing you stress. Contact Tax Group Center today to get started!

If you’ve received the IRS letter CP14, you probably have some questions. The good news is that there’s still a lot you can do before it becomes a problem that impacts your finances or credit. However, the reality is that you probably do owe the IRS unpaid taxes if an IRS notice CP14 has arrived in your mailbox. Let’s go over what this form means and what options you have, and you’ll see why acting quickly is in your best interest.

Why Did I Get a CP14 Form From the IRS?

The IRS CP14 Balance Due notice informs taxpayers that they have an unpaid tax balance. The most common reason why taxpayers receive this notice is because they filed a tax return without actually paying the full amount of taxes owed with the return. If this is the case, you may have incorrectly interpreted what you owed. You may have also knowingly failed to pay your balance because you’re unable to cover what you owe in taxes right now. Here are some other common causes for CP14 letters:

• You owe a balance because the IRS is charging you a penalty for not filing your taxes by the filing deadline.
• You didn’t withhold enough taxes based on your income during the year.
• You failed to make your estimated quarterly tax payments in April, June, September, and January.

The good news is that your failure-to-pay penalty may be forgiven if this is your first time receiving it. Generally, the IRS is pretty generous if you request a first-time penalty abatement. However, the IRS is pretty strict when it comes to penalties for not covering your quarterly taxes on time. Some taxpayers are able to work something out to get that penalty dropped when creating a larger plan for debt relief with a tax lawyer.

What about interest on unpaid taxes? While you won’t be charged interest on the money you owe in late taxes as long as you pay your debt in full by the deadline on the notice, interest begins accruing on any unpaid amount left by that date. If you apply for a relief option, action on penalties and interest is typically suspended as long as you’re complying with the terms of your relief plan.

Could an IRS Notice CP14 Be a Mistake?

In most cases, you will at least understand why the IRS has applied a balance to your account. It’s very common to miss tax payments due to human error or lack of funds. If you only owe a penalty, the total may be low. 

Do you feel that the IRS has made a mistake, and that you paid all of your owed taxes in full by the deadline? Make sure you look over your tax return and payment records before sending the IRS any payments. While rare, it’s possible that the IRS has made an error. Don’t forget to give the deductions and credits on your return a second glance, too. In some cases, you may be able to reduce your tax liability by filing an amended return. This can potentially wipe out the owed balance by reducing what you actually owe in taxes.

What to Do After Receiving a CP14 Letter

Do not ignore your IRS CP14 letter just because you feel the IRS has made an error. The IRS will treat your debt as active even if it’s an error until you correct the situation! Once you’ve confirmed that the IRS’s assessment of your debt is correct, you have a few options. Here’s a look at how taxpayers should handle C14 letters:

• Pay Your Balance in Full: If you’re able, paying your debt in full by the deadline on your letter is the most direct way to remove yourself from the IRS’s radar.
• Request an Extension: The IRS is sometimes willing to give taxpayers who owe balances more time to pay. In some cases, you will be given up to 120 days to come up with the funds needed to get your balance to $0. This is what’s known as a Temporary Delay of Collection Process.
• Ask for Tax Relief: If you can’t cover your balance, the IRS may allow you to utilize a tax relief option.

The most common form of IRS debt relief is something called an Installment Agreement (IA). Using an installment agreement, you can pay off your balance over a span of time lasting up to 72 months (six years). If you can prove financial hardship, the IRS may allow you to enter into an Offer in Compromise (OIC) or Currently Non Collectible (CNC) status to reduce or freeze your debt. Keep in mind that both relief options require an extensive application process that requires you to prove that you’re unable to pay your tax debt by providing financial information and records.

Why You Shouldn’t Ignore a CP14 Letter

If this is your first time dealing with the IRS, it’s understandable if you feel intimidated. We want you to understand that having an IRS tax balance doesn’t have to snowball into a big ordeal if you address the issue promptly. The IRS is often more than willing to work with taxpayers with balances. In fact, this is precisely why the IRS has such a robust collection of relief options under its Fresh Start initiative.

There’s no reason to try to evade the IRS if you can’t pay your balance. If you try that, the serious consequences begin piling up. The IRS will begin applying liens, levies, and other penalties to your account if you don’t respond by the deadline on your CP14 letter. Unfortunately, this means that the IRS will try to seize your wages, bank accounts, and assets in an attempt to recover what you owe on your tax balance. This issue can end up haunting you for years even if your tax balance wasn’t that high. If the IRS decides to levy your wages, your employer will have no choice other than to comply. What’s more, nonpayment penalties that are added to your balance can end up costing you much more than what you originally owed in taxes.

It’s Time to Ask a Tax Expert: Get Help With Understanding Your CP14 Notice

If you’ve received the CP14 letter, the team at Tax Group Center is here for you. We can confirm what you owe, and you may be able to use the IRS CP14 pay online option through the IRS’s Direct Pay portal to pay as quickly as possible. Depending on your IRS CP14 reason for payment, our team may be able to help you explore options for penalty abatement and debt relief after addressing any unfiled returns from the past. Contact Tax Group Center if you have questions about a CP14 notice you’ve received from the IRS. Our team has been helping clients work with the IRS for 30 years, and we’re ready to help you, too!

What does the IRS think of cryptocurrency? If you’re dabbling with Bitcoin and other virtual currencies, you need to know the Internal Revenue Service’s stance on things. Do you pay taxes on Bitcoin and other virtual currencies? Absolutely! Skirting the use of actual dollars doesn’t mean skirting the tax obligations that go along with using actual dollars. 

While cryptocurrency tax laws are still emerging, the one thing that’s as clear as day is that the responsibility falls on the crypto user to calculate, track, and pay all taxes owed. Take a look at the basics of virtual currency tax rules to avoid IRS penalties and interest.

Do You Pay Taxes on Bitcoin? Some Crypto Tax Basics

Any cryptocurrency units that you purchase, sell, or mine are considered taxable as property by the IRS. As a result, you should view cryptocurrency that you own more like stocks or a vacation home than currency. That means being aware of capital gains and losses when you move your cryptocurrency. However, there is a caveat to that rule that makes understanding how to report cryptocurrency on taxes confusing. The IRS does view cryptocurrency as income if you are paid in cryptocurrency by an employer. 

Here’s a rundown on some of the big things to know about cryptocurrency and your taxes:

• There isn’t a separate “cryptocurrency tax rate.” Crypto fair market value is converted to dollars for tax purposes.
• Cryptocurrency is generally treated as property.
• All property-transaction taxes apply to crypto transactions.
• Wages paid in cryptocurrency are taxed as regular income.
• Self-employment income paid in cryptocurrency is taxed as regular self-employment income.
• If you pay for services using cryptocurrency that you’re holding as a capital asset, you must report a capital gain or loss because you are exchanging an asset for a service.
• Cryptocurrency received as a gift will not become recognized income until you sell, exchange, or dispose of it.
• Cryptocurrency paid to charitable organizations will qualify for the charitable deduction contribution. Generally, the deduction amount is equal to the fair market value of the currency at the time of your donation.

You must report any sales or capital transactions involving cryptocurrency throughout the year. Typically, you will be reporting capital gains and losses using Form 8949: Sales and Other Dispositions of Capital Assets. You will also be responsible for detailing gains and losses using Form 1040/Schedule D: Capital Gains and Losses. 

In anticipation of taxes, you should be keeping impeccable records and documentation regarding all sales, exchanges, and disposition of cryptocurrency. It is especially important to document the fair market value of all currencies at the times of your transactions.

Bitcoin as Wages: How Is Bitcoin Taxed When an Employer Pays Me in Cryptocurrency?

If your employer pays you using Bitcoin or another virtual currency, you’ll need to report that income the same way you’d report any income you’ve earned. 

The good news is that your employer will be the one doing most of the hard work in regards to converting Bitcoin to dollars on your W-2 form. That means that you’ll see the Bitcoin value that you were paid converted to U.S. dollars on your form. Throughout the year, your Bitcoin salary will also be subject to the same withholding amounts for Social Security and Medicare as regular wages based on the converted dollar value.

Be Prepared for Extra Work When Keeping Track of the Cryptocurrency Tax Rate

When you do business using cryptocurrency, the IRS expects you to keep track of fluctuating values to accurately fulfill your tax obligations. This is especially critical if you do a lot of Bitcoin mining, selling, or trading. Here’s what you’re responsible for:

• Recording the fair market value of the Bitcoin when you mined or purchased it.
• Records of the fair market value of your Bitcoin when you used it.
• Records of the fair market value of your Bitcoin when you sold it.

While you’re being held to the same tax standards as people purchasing and selling stocks, you may not be getting the same paper trail that stock buyers are getting. Someone working with a broker would rely on a Form 1009-B or Form 1099-K at the end of the year to report transactions for tax purposes. With Bitcoin tax, you’re generally on your own when it comes to keeping records.

In most cases, third-party crypto networks are only required to send tax forms to customers who ordered more than $20,000 in cryptocurrency and made at least 200 transactions. Five states (Arkansas, Massachusetts, New Jersey, Vermont, and the District of Columbia) have even lower thresholds ranging from $600 to $2,500. However, you’re still responsible for reporting your crypto gains on your taxes even if you didn’t hit the $200,000 or 200-transactions thresholds. This is where a lot of people run into trouble; they assume that not receiving tax forms means that they don’t have to report cryptocurrency on taxes.

While crypto networks are supposed to send you the right forms once you hit certain thresholds, the bottom line is that you’re ultimately responsible for reporting all crypto gains. It’s wise to keep your own perfectly organized records regarding all transactions even if you think you’ll be getting a form. Your transaction history on the crypto platform you use can also be helpful for keeping your own records.

What About Capital Losses on Bitcoin and Other Virtual Currencies?

You can take advantage of many of the usual tax deductions if you access tax preparation services. The IRS does allow cryptocurrency users to deduct capital losses. The process works essentially the same as deducting capital losses for any stocks or bonds you’d own. Under current rules, you are permitted to write off cryptocurrency losses of more than $3,000. The volatile nature of cryptocurrency makes this an especially appealing tax perk for crypto users and traders. What’s more, your losses may help counteract any capital gains owed from your crypto endeavors.

How Is Bitcoin Taxed? Getting Answers From Tax Professionals

If you’ll be filing taxes that include Bitcoin and crypto payments, your return is going to be very interesting to the IRS. While any mistakes you make may be honest ones stemming from the newness and uncertainty of how to pay taxes on Bitcoin, the IRS will still hold you to the same standards as all other taxpayers when it comes to accurately and honestly filing and paying your taxes. Make sure you’re using tax help resources to ensure that you’re not putting yourself at risk for audits or penalties. At Tax Group Center, we use our 30 years of experience with the IRS to help today’s generation of crypto users enjoy the same steadfast tax support as people filing returns with typical wages and investments. If you have questions about virtual currency tax laws, contact us today.