How to Handle Back Taxes: Options for Businesses and Individuals

Owe back taxes? Don't panic! Many businesses and individuals find themselves in this situation. At Straight Talk CPAs, we understand that dealing with the IRS can feel overwhelming. The good news is, you have options. It’s important to explore strategies to settle, reduce penalties, or set up payment plans with the IRS before it becomes a bigger issue. Ignoring the problem will only make it worse.

Think of us as your friendly guides through the sometimes-scary world of tax debt. We’re here to provide you with straight talk real solutions, so you can sleep better at night. Let's dive into how you can tackle those back taxes head-on.

Understanding the Back Tax Beast

First things first, let's understand what we're dealing with. Back taxes are simply taxes you didn't pay on time. This can happen for a bunch of reasons—maybe your business had a rough year, you forgot about estimated taxes, or you simply didn’t have the cash on hand when the tax bill came due. Whatever the reason, the IRS isn’t going to forget about it. And trust us, those unpaid taxes can snowball quickly with penalties and interest.

Penalties and Interest: The Double Whammy

The IRS doesn’t just want the money you originally owed; they also add penalties and interest to the tab. The failure-to-pay penalty is usually 0.5% of the unpaid taxes for each month or part of a month that the taxes remain unpaid, but this penalty is cut in half to 0.25% when you are on a payment plan.



Interest rates can vary, and they apply to the unpaid tax, penalties, and any accrued interest. As you might imagine, this can add up faster than you think!

Taking Action: Your Options for Relief

Payment Plans: Breaking It Down

A payment plan with the IRS, also known as an installment agreement, allows you to pay off your tax debt over time. This can be a lifesaver if you can’t afford to pay the full amount right away. The IRS offers both short-term and long-term payment plans.

• Short-Term Payment Plan: This gives you up to 180 days to pay your balance in full. It’s a good option if you can pay off the debt relatively quickly.
• Long-Term Payment Plan (Installment Agreement): This lets you pay off your tax debt in monthly installments, typically for up to 72 months. This is ideal if you need more time to pay off a larger balance.

Example: Maria, a freelance graphic designer, had a couple of tough months and fell behind on her estimated taxes. She owed $4,000. Instead of ignoring it, she set up a long-term payment plan with the IRS, paying it off in manageable monthly installments over two years. This prevented further penalties and kept the IRS off her back.

Offer in Compromise (OIC): Settling for Less

An Offer in Compromise (OIC) allows you to settle your tax debt with the IRS for less than the full amount you owe. The IRS will generally accept an OIC if they determine that you can’t pay your full tax debt or that doing so would create significant financial hardship.

Important Note: OICs aren’t easy to get approved. The IRS will look closely at your ability to pay, income, expenses, and asset equity. You'll need to provide detailed financial information and be prepared for a thorough review.

Example: Dan’s small retail business struggled during an economic downturn. He accumulated a significant tax debt of $50,000. After assessing his financial situation, it was clear he couldn’t pay the full amount. With the help of a tax relief professional at Straight Talk CPAs, Dan submitted an OIC, arguing that his ability to pay was limited due to ongoing financial hardship. The IRS eventually accepted an OIC for $20,000, allowing him to get back on his feet without the crushing weight of the full debt.

Penalty Abatement: Asking for Forgiveness

If you can demonstrate reasonable cause for failing to file or pay on time, the IRS might grant you penalty abatement.

Examples of Reasonable Cause:

• Serious illness
• Death in the family
• Natural disaster
• Reliance on incorrect advice from a tax professional

Example: A small business owner missed the tax filing deadline because his wife was seriously ill and required constant care. He provided documentation to the IRS explaining the situation and requested penalty abatement. The IRS, recognizing the extenuating circumstances, waived the penalties.

Currently Not Collectible (CNC) Status: Temporary Relief

If you’re experiencing severe financial hardship, the IRS might place your account in Currently Not Collectible (CNC) status. This means they’ll temporarily suspend collection efforts because you can’t afford to pay.

Important Note: CNC status isn’t a get-out-of-jail-free card. The debt still exists, and interest and penalties continue to accrue. The IRS may also review your situation periodically to see if your financial situation has improved.

Steps to Take Now

What You Should Do Right Now If You Owe Back Taxes:

• Don’t Ignore It: The worst thing you can do is pretend the problem doesn’t exist. The IRS isn’t going away, and the debt will only get bigger.
• Assess the Situation: Gather all your tax notices and financial records. Figure out exactly how much you owe, including penalties and interest.
• Contact the IRS: Call the IRS or visit their website to explore your payment options. You can apply for a payment plan online.
• Consider Professional Help: Dealing with the IRS can be tricky. A tax relief professional at Straight Talk CPAs can help you understand your options, negotiate with the IRS, and develop a strategy to resolve your tax debt.

Straight Talk CPAs: Your Partner in Tax Relief

Look, we get it. Back taxes are stressful. But you don’t have to go it alone. Straight Talk CPAs is here to provide you with expert guidance and support every step of the way. We’ll help you understand your options, negotiate with the IRS, and find the best solution for your specific situation.

Remember Maria and Dan? They are real-life examples of how Straight Talk CPAs can help. We can help you too.

Contact us today for a free consultation, and let’s get you on the road to tax relief.