“Dear Jim,
I have aquired a huge mess by not filing my taxes and need advise. I am very depressed about my situation.
I have an outstanding balance for back pay child support and now I have back taxes I owe. I have a wife and a six year old beautiful child. I am a contractor who is only maing enough money to keep my monthly bills current. By the end of the month I have sacrificed all of my money to keep my bills current.
What can I do to fix this?
Dan”
Dear Dan,
Thanks for the question. I see you have several bills- however, consider that the IRS is a “super-creditor” for purposes of collecting (i.e. they can issue levies and liens). So, do not ignore them- deal with your entire financial picture proactively.
You need an action plan for the IRS. Here it is:
- File all back tax returns immediately: It sounds like you have filed several back tax returns recently and have been caught up to date. Have you filed all of your back returns, including 2010? If not, start there and file all of your returns.
- Stop the trend- Start making estimated tax payments or become an employee: Stop the reason why you owe taxes. You are an independent contractor- which means you are responsible for sending estimated tax payments to the IRS. If you cannot send in these payments, you will continue to owe each year. You need to put a stop to this trend by making estimated payments or look to become an employee. If you are working for one company, ask them to withhold for you- the best way to save is to pay yourself first- the best way to not owe is to pay the government first. Start with asking your payors to withhold for you. Look at how much you owe yearly and ask for that percentage to be taken out before you get paid.
- Find how much you owe, tax and penalties: Determine your exact amount of tax and penalties associated with your account. If you have any question on whether your returns filed are correct, have a local tax pro look them over and see if the liability can be corrected to a lower amount owed.
- Look to reduce any penalties owed: If you have a hardship situation (called reasonable cause) ask the IRS for penalty abatement, in writing. Reasonable cause can include financial hardship by loss of work, long-standing medical conditions, and other situations that are outside your control. Document your hardships with third party verifications such as doctor notes and unemployment claims.
- Start a payment plan with the IRS based on your ability to pay: depending on how much you owe, you have several options to repay your back taxes including payment plans. If you have an extreme hardship, you may try to qualify for payment deferral (called currently not collectible).
- Consider other options for tax relief– However, be skeptical here. Tax relief is rare and few qualify- however, if you qualify, it is easy to do yourself. I can point you in the right direction, for free, so that you do not dig yourself further into debt by paying someone to do this for you.
- Make payments on your back child support: again, get yourself back on track. Put this into your budget and stick to it. If you are working for one company, ask them to pay you in two checks: one for your pay, the second that you can send directly for the child support payment.
- Stay vigilant and self-disciplined in your plan: once you have caught back up, make sure you do not fall back into the trap of owing again. If you are in a payment arrangement or get tax relief, owing will default these agreements.
My prayers are with you Dan. Stay strong and drive your family through these times. If you need any help, please feel free to contact me.
Your servant.
Jim
Jim Buttonow is one of the resident debt experts here at GetOutOfDebt.org that helps people for free. Jim is a licensed CPA who spent 19 years with the IRS coordinating large compliance teams of IRS agents and specialized personnel. In the last 5 years, Jim has invented consumer and practitioner software and treatises on how to address many different tax issues. He has also represented many people before the IRS examination, collection, filing, and appeals functions. He currently assists taxpayers on an active pro bono tax practice aimed at serving people in need.
If you have a tax question you’d like to ask just use the online form. I’m happy to help you totally for free.
