Getting Back Taxes Help From a Tax Attorney
It doesn’t take much to fall behind on your taxes. Perhaps you mistakenly didn’t have enough withheld from your paycheck one year, and bam—you found yourself staring at a huge IRS bill. Or maybe you filed a tax return for your business, and you ended up owing a lot more than you thought. In other cases, you might have back taxes because the IRS audited you and assessed additional taxes against you.
Regardless of why you incurred back taxes, it’s easy to get behind. In a lot of cases, people don’t know where to get the money to pay off their tax debts. So they end up ignoring their tax bill. If you’re in this boat, you’re not alone, but you’re taking a huge risk. If you don’t pay, the IRS can force you to pay, and by the time it gets to this stage in the game, the agency’s tactics aren’t always ideal.
Don’t put it off anymore, getting back taxes help sooner than later can only make your situation better. We can help you. At the W Tax Group, we have a team of experienced tax professionals who can answer your questions and help you pay your back taxes. In the meantime, check out this guide for tips on how to deal with back taxes. It also includes more information on how a tax attorney can help with back taxes.
What to Do If You Have Back Taxes
The first step to getting your tax issues straightened out is to make a commitment to prioritize your tax liability and get it taken care of before it’s too late. When you contact a tax attorney, they can let you know what to expect in your situation. The options vary based on how much you owe the IRS. For instance, the situation is different if you owe over $50,000 versus if you owe between $10,000 and $49,999.
They can also outline all of the different options you have, and they can help you apply for IRS programs. In the following sections, we’ll outline more detailed options for taking care of back taxes.
Ways to Pay Back Taxes or Avoid Them
Ideally, it’s important for taxpayers to pay their late taxes owed as soon as they can. Penalties and interest will continue to accrue until the delinquent taxes are paid in full. Not sure how to pay your back taxes? The first thing to do is determine whether you have any available resources to borrow against to pay off the late taxes or avoid them altogether.
In some cases, this can lead to a potential windfall saving for the taxpayer. In particular, this happens if you pay off the taxes with a low-interest loan instead of setting up a payment plan and subjecting yourself to the IRS’s interest rate. You also save money when you come up with a way to pay your back taxes on your own before you incur a lot of penalties.
Here are some financial strategies that you can use to pay off your back taxes. You can do most of these things on your own, but if you want to run the pros and cons past a tax attorney, they can help you ensure that you’re making the most efficient decision for your situation.
Refinance Your Home
Provided you own a home and that home has adequate equity and you qualify, refinancing your home to pay off the IRS is a great tax-free alternative. Even with an existing overdue IRS tax liability, it’s possible you can find a lending institution willing to refinance your home provided you have the income and job history to qualify.
Being proactive and doing this prior to any tax lien or tax levy filing is critical. After any lien filing, it will be much more difficult to take out loans even if you have collateral. Additionally, depending on how far along you are in the collection process, finding an institution to refinance the home may not be easy. Nonetheless, there are financing sources such as smaller banks and non-traditional lenders that may be willing to work with you.
Borrow From Your Life Insurance
Borrow against your whole life insurance policy. You may have a life insurance policy with cash value. You may not want to surrender that policy for its cash value leaving your loved ones with no life insurance. Borrowing against the policy may provide you a tax-free way to raise money to erase unpaid taxes and steer clear of the IRS.
The loan taken out on your insurance policy will have to be paid back with interest, however, the interest cost of paying back the loan on the policy may pale in comparison to the penalties and interest paid on an IRS tax liability. To compare rates, check the IRS’s current interest rate for payment plans before borrowing from your life insurance. The rate changes quarterly based on the federal prime rate. Keep in mind that any loan must be accompanied by a legally bound contract to repay it.
Use Your 401K, 403B’s or Pension Plans
If you have a 401k, 403B or pension plan, etc, you may be able to use that to pay off your back taxes. You can cash out the account, but then, you may face early withdrawal penalties, and you will be ruining your retirement nest egg.
Instead, consider borrowing money from your retirement plan. In addition, depending on your situation, you might qualify for a hardship withdrawal. Borrowing from your retirement plan is not the same as an early withdrawal which can lead to penalties and another tax liability. You will have to pay back the loan with interest for tax reporting purposes. So, again, you should compare interest rates before taking this path.
The rules also vary depending on the type of plan. For a 401k or 403B, your employer must have language allowing loans to be taken by participants. You will want to make sure your plan allows for loans. The loan must be based on a legally enforceable agreement. The loan must be documented and include a date, amount of loan, and a schedule for repayment. The loan can be up to 50% of taxpayers’ balance or a maximum of $50,000.
Sell or Borrow Against Owned Assets
You can also sell your assets to pay back taxes. Or you can borrow money against an asset you own. Selling can be easier in some cases, but in other cases, borrowing might be the only option. For example, imagine that you own a business and that business has assets that have value. Due to the ongoing nature of the business, you need that asset to operate your business and can’t sell it. However, you may be able to borrow money against that asset using it as collateral.
You may also be able to borrow money against an illiquid asset. You may own land that has value. However, the land is not something you can sell quickly to remedy your situation. Sometimes the sale of a parcel of land can take months or years. Instead, consider borrowing money and using the land (or any other illiquid asset) as collateral to erase or avoid your tax liability.
Options for Businesses to Pay Back Taxes
Your business may be profitable and yet still have payroll 941, trust fund recovery, sales tax problems, or other tax issues. Utilizing non-traditional sources of financing for business owners almost always comes with higher interest charges and or fees, however, in many cases, these fees can still be less than the IRS is or would be charging you for unpaid taxes. Here are some options for businesses looking for ways to pay their back taxes.
Invoice or Account Receivable Factoring
Your business may have an invoice payment cycle longer than others. It may rely on one or two large customers with good payment history, who pay very slowly. Your business may have accounts receivables that take time to collect. However, a factoring loan can turn those unpaid invoices into cash. Then, you can use the money to pay the IRS.
The source of funds for invoice factoring is generally more concerned with your customers’ ability to pay, not your business. In other words, when you apply for a factoring loan, the lender looks at whether or not your customers are likely to pay the invoices. They don’t look at your business profitability or credit scores.
Family and Friends, Investors
You may be able to borrow money from a family member or friend by offering them equity (partial ownership) in your business. This requires you to draw up some paperwork, but when you give them a share of the business, you basically agree to give them that percentage of your profits every year.
So, if a family member loans you $100,000 and you give them a 2% share in your business, they are entitled to 2% of your profits every year. The exact terms vary depending on what you decide. They aren’t responsible for your business losses, however.
Borrow Against Inventory, Equipment, or Real Estate
Your business may have inventory, raw materials, or finished goods that you can borrow against to get a percentage of their value. You will have to look for a specialized lender to help with this type of loan.
Similarly, you can borrow against your machinery and equipment. Some lending sources may be willing to advance you a percentage of the liquidation value of these assets. You can also borrow against the owned real estate which houses your business, given it has adequate equity.
If you have the resources to qualify for any of these options, you will almost surely need the services of an experienced IRS Tax Lawyer. They can prepare and review the appropriate paperwork, draw up the agreements, review the existing assets for loan covenants, subordination clauses and pre-payment penalties, etc.
What Will Happen if You Don’t Address Your Back Taxes?
In most cases, taxpayers aren’t fully aware of the consequences they could face for failure to file and pay taxes. When you don’t file your taxes, the IRS can still see what you might owe, and it’s not going to be happy with you.
If you fail to pay your taxes, the IRS adds on huge tax penalties and interest charges, which make your situation much worse than it otherwise would have been. If this goes on for an extended period of time, the severity of the situation compounds. The IRS will take action against you if you wait—it’s only a matter of time. Here you can find out how much you owe the IRS.
You don’t want to face these kinds of negative consequences, and that includes calls and letters from the IRS. There really is only one way to resolve issues with your back taxes: Face them. That being said, you don’t have to face them alone. Tax relief lawyers exist to help people like you get help with their IRS back taxes.
Can a Tax Lawyer Provide Back Taxes Help?
Yes, a tax lawyer can help you with your back taxes by going over your finances, your income, your other liabilities, your assets, and your personal situation. Then, they can help with finding the best legal solution to get your taxes paid off once and for all. Handling this situation on your own is stressful, and it’s unnecessary when you can have legal help beside you.
Not only will your lawyer help you figure out how to pay your back taxes, but they can also communicate with the IRS on your behalf, taking some of that negativity out of your life. A few common methods used for resolving back tax issues are listed below:
- Offer in Compromise – An offer in compromise is a settlement agreement between you and the IRS. In some circumstances, the IRS may allow you to settle your back tax liability for less than the full amount you owe.
- Installment Agreements – Installment agreements can be a great way to pay your back tax liability through a monthly plan. You would still have to pay off all of your back taxes owed, but you could do it through an affordable monthly payment.
- Currently Not Collectible – If you truly don’t have the money to pay your taxes, it’s possible to get the IRS to stop collections by proving that your account should be placed in Currently Not Collectible status.
A qualified and experienced tax lawyer with the W Tax Group can help you with any of the above back tax solutions.
How Can a Tax Attorney Help With Back Taxes?
A tax attorney can help you because they understand how the IRS deals with tax debts. They know about the different tax relief options, and they can help you find the right program for your situation. A tax attorney deals with resolving tax debt every day. They know the deadlines, the rules, the consequences, and the options. When you hire a tax attorney, they also know what the IRS wants to see and hear — so they have an advantage in negotiations.
Here’s a brief overview of what to expect when you contact a tax attorney for help with back taxes.
- Getting a free consultation — Most tax attorneys start with a free consultation. This is the tax attorney’s chance to get to know more about your situation, but it’s also your opportunity to “interview” the tax attorney and decide if they’re a good fit for your situation.
- Signing up — If you’re happy with the free consultation, you can sign up for the tax attorney services. Make sure that you understand what you’re agreeing to. Are you getting help applying to a specific program such as an offer in compromise or innocent spouse relief? Is the tax attorney going to look into your situation and then help guide you forward? The services can vary so just make sure you understand the terms.
- Providing power of attorney — A power of attorney gives the tax attorney the right to communicate with the IRS on your behalf. The power of attorney form is one of the first forms that you will sign when you get back tax help from a tax attorney.
- Filing unfiled returns — If you have unfiled returns, that’s generally the first thing that you’re going to deal with. You may need to provide the tax relief company with income and expense documents and any other information needed on your return.
- Applying for tax relief programs — If you don’t have unfiled returns, this may be your first step. There are all kinds of relief programs including innocent spouse relief and offer in compromise. If you don’t qualify for a relief option, the tax attorney will move on to penalty abatement and making payment arrangements.
- Requesting penalty abatement — The IRS is willing to remove penalties for all kinds of reasons. Failure to file and failure to pay penalties can get up to 25% of your tax balance, and they accrue interest on top of that amount. That can add up quickly, which is why you should never skip this step. Often, when people deal with back taxes on their own, they skip this element, and then, they end up paying much more than they should.
- Setting up payment plans — You will need to set up a payment plan, or explore one of the options discussed on this page so that you can pay off your taxes. With an installment plan, you make monthly payments on the tax debt.
These are the general steps that occur when you work with a tax attorney, but there’s also a lot more that can happen. The exact process varies based on your situation. But you don’t have to go in blind. During the consultation, tell the attorney about your situation, and then, just ask what the process will look like moving forward. Although they may not be able to preplan every detail because there are often surprises along the way, they will be able to use their experience to give you a general idea of what’s likely to happen.
Signs You Should Contact a Tax Attorney About Back Taxes
Here’s the truth — you don’t always need a tax attorney to deal with back taxes. However, when you do need their help, their services can pay for themselves. When you work with an IRS tax attorney, they can help you find all of the legitimate ways to reduce your tax debt. They can help you find the most cost-effective tax resolution option, and they can help protect you against costly accusations of tax fraud or similar issues. All of this saves you money.
Wondering if your situation merits contacting a tax attorney? The best option is to reach out to an IRS tax lawyer and see what they say. Then, you can weigh their comments with your own thoughts and decide if they can help you. In most cases, the answer is a resounding yes.
Here are some signs that you should contact a tax attorney about your back taxes or other IRS-related tax issues.
- You’re tired of dealing with the IRS — Yes, stress is a legitimate reason to outsource this task to a tax attorney.
- You’re confused by the IRS notices — The IRS uses a lot of complex (and often scary) language. Even if you’re not stressed out, you should contact a tax attorney if you’re confused.
- You don’t understand your options — Tax attorneys deal with the IRS and state tax agencies every day. They can help you understand all of your options, and they can help you identify the best option for your situation.
- You want help with the paperwork — Even if you’ve identified an option, you may still need help with the paperwork. Say for example, that you feel strongly about applying for innocent spouse relief. However, you want to ensure that you fill out all of the paperwork correctly. A tax attorney can be instrumental here.
- You want to increase your chance of success — You might feel comfortable with the IRS paperwork, but you don’t want to waste time applying and then get rejected. A tax attorney cannot guarantee that you’ll get accepted to a program. The IRS has the final say on everything, but tax attorneys deal with these forms every day. They know how to increase your odds of approval by submitting the information the IRS expects to see.
- You’re facing a lot of penalties — Penalties add up quickly and getting them removed often requires you to make an argument about statutory elements or reasonable cause. Again, a tax attorney can lead the charge here.
- You’re dealing with back taxes due to an audit — If you’ve been paying your back taxes but you get an assessment after an audit, that can be frustrating. It’s especially hard if you don’t agree with the audit results. Depending on the time frame since the audit, the tax attorney may be able to help you appeal or apply for a substitute or equivalent hearing. They can also help you make arrangements on the tax debt from the audit.
- You’re facing tax evasion or tax fraud charges — You definitely need a tax attorney. Don’t deal with these types of accusations on your own. There can be fines in the hundreds of thousands. There can also be jail time. Make sure to call a tax attorney if tax fraud is even mentioned by the IRS.
These are just a few of the reasons that you should contact a tax attorney about your back taxes. If you don’t see your reason listed, that doesn’t mean you don’t need an attorney. It just means that your reason is outside of the scope of this guide. Again, a free consultation with an IRS tax lawyer can help you decide if you need their assistance.
Should You Stop Filing Tax Returns If You Have Back Taxes?
No. If you have back taxes, you should still continue to file your IRS tax return as required. If you owe additional money, your back taxes owed will increase. However, by filing on time, you avoid expensive penalties like the failure-to-file penalty. Keep in mind that it’s always better to file and not pay than it is to not file and not pay.
If you file and get a refund, the IRS will apply the refund to your tax debt, and then, that will lower the amount of your back taxes that you owe. There are ways to keep your refund when you have back taxes, but this can be tricky. You will need to set up the right type of arrangement to qualify for this to happen. Once again, a tax lawyer can point you in the right direction here.
What About State Back Taxes?
In a lot of cases, if you owe back taxes to the IRS, you may also owe back taxes to your state. You will have to deal with each of these issues separately. You pay state taxes to the state taxing authority, and federal taxes go to the IRS. As a result, you can never use the same payment plan or resolution option for both of these different types of taxes.
Keep in mind that the rules are different in every state. Just because someone knows how to set up a payment agreement in Kansas, for example, doesn’t mean that they know how to do that in Colorado. Or just because they understand offers in compromise rules in New York doesn’t mean that they know that process in California.
To be on the safe side, make sure that your tax attorney or tax resolution firm has experience dealing with back taxes from both the IRS and your state. At the W Tax Group, we have the experience you need. We understand how to deal with IRS and state back taxes. We’re experienced and licensed in every state. So, we would love to help you whether you live in Alabama, Wyoming, or any of the states in between.
Process to Get Back Taxes Help
IRS Back Tax Assistance is a Phone Call Away
There is no liability collector more intimidating than the IRS, and owing back taxes is like having a dark cloud hovering over your life. So if you’re feeling stressed and worried about how to pay off your back taxes, you should realize this issue has been solved thousands of times before and it can be done for you as well.
Get the IRS back tax help you need by calling the W Tax Group today.