For many Independent Contractors or small business owners, April 15th signifies a newfound stress—unpaid taxes. For some, not paying taxes is just a casualty of the economy, for others, it’s a result of poor planning throughout the year. Regardless of the reason, unpaid taxes will eventually catch up to everyone…and when they do, it’s often a scary and stressful situation.

For Independent Contractors, it’s important to understand that the government is at the top of the list of creditors who must get paid. Any assets (other than your home or selling your business) can be confiscated if you owe taxes. Checking accounts, savings accounts and wages are all fair game if taxes are not being paid. Don’t think you can hide your assets to avoid the IRS – that comes under the heading of fraud and can equal jail time.

To avoid such penalties, the Tax Resolution experts at ATBS have compiled the following steps for getting caught up with any unpaid taxes:

Step # 1 – File your tax return(s) no matter what! 

Even if you owe more than you can pay, send in your tax return(s). You start incurring substantial penalties for not filing and will start incurring interest. In addition, in order to start any positive steps towards tax resolution, you need to have all of your prior taxes filed – so it will save you valuable time in the long run – regardless if you can pay right away or not.

Step # 2 – If you can’t pay in full, apply for an installment agreement.

What if the amount you owe far exceeds what you have in the bank? Well, you’re not unusual and you’re not alone. To pay what you owe in monthly payments, you can file Form 9465-F5 or simply call the IRS at 1-800-829-1040 to request an installment agreement.

You can make a request for an installment agreement if you meet the following requirements:

  1. you owe less than $50,000;
  2. you can pay off what you owe within six years/72 months;
  3. you can provide accurate financial documents to support your claim; and
  4. you’ve filed all outstanding tax returns to date.

Requesting an installment agreement isn’t difficult and Form 9465-F5 is easy to complete. You don’t need an attorney or an accountant to fill it out, but you can always ask your tax preparer or resolution specialist for assistance. The form requires your name, address, Social Security number, the name of your bank (if you want the IRS to automatically withdraw the payment each month) and your employer (if you’re an Independent Contractor write “self-employed”). It also asks how much you owe, how much you can pay each month, and on what day of the month the IRS can expect your payment.

If you can consistently make the monthly payments and keep up with your quarterly estimated payments, almost all requests are granted.

Step # 3 – Don’t fall off the wagon.

When the IRS approves your request for installments, you will be charged a one-time $105 start-up fee. If your income falls below a certain level, you may qualify for a lesser fee of only $43. Don’t submit the fee with form 9465-F5. The IRS will deduct the fee from your first monthly payment.

Keep in mind, even if your installment request is approved, you still will be charged interest and applicable penalties until the amount due is paid off. To limit interest and penalty charges, file your return on time and pay as much of the tax as you feasibly can each month.

Once an installment agreement is approved, DO NOT miss a payment. If you miss payments, the IRS can cancel the agreement. At that point, all taxes owed are payable in full and the IRS can start collection activity on your bank accounts and from your carrier. If you just can’t make a payment, call the IRS at 1-800-829-1040 and ask for an extension. This way, you don’t lose your valuable installment agreement.

If the amount you owe is just too much to pay – even broken down into monthly payments – it’s time to move on to Step #4…

Step #4 – Let’s make a deal… 

If you think there’s no possible way you could ever pay off what you owe, you have the opportunity to ask for an “Offer in Compromise”. You still have to pay the IRS, but less than 100% of what you owe.

The IRS will accept applications for an Offer in Compromise only if they believe, based upon the documentation provided, that it is unlikely the amount owed can be collected in full and what is offered reasonably reflects what can be collected. As with an installment agreement, you can only qualify for this program if you are current in all your taxes. The IRS charges a $150 fee to apply for an Offer in Compromise. Keep in mind, Offers in Compromise are not easily granted, require a lot of documentation on your part, and take a good deal of time to put together. But if granted, the time (and money if you pay someone to assist you) is well spent.

Your chances of obtaining an Offer in Compromise may increase if you partner with an IRS Tax Resolution expert. This person talks with the IRS year-round and can help you negotiate a fair and reasonable outcome.

To apply for this program, submit Form 656 and Form 433A. Form 656 contains what you are offering to pay the IRS. Form 433A is a financial information form showing what you own, owe in taxes, and what it costs you to live. All amounts in the 433A must be supported with documentation. These forms can be downloaded from the IRS website, www.irs.gov.

Step # 5 – Resolve to get the IRS monkey off your back.

Don’t let time go by without getting caught up with the IRS. Make changes now to start communication with the IRS, if necessary—stay current on your quarterly self-employed taxes and put money aside for future taxes. With a plan in place, your life could be a lot easier this time next year.

If you need help putting a successful plan into action, call the ATBS Tax Resolution Specialists at 1-866-431-2439. Making one phone call today could save you a lot of money and stress in the long run.

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Jessica Wood, Tax Resolution Specialist

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