The Honest Taxpayer's Guide to Settling Tax Debt

We pay our federal income taxes through a voluntary pay-as-you-go payroll deduction, or through a system of quarterly estimated payments to report earnings not subject to payroll deductions. The system encourages upfront payments and can add additional tax debt to the taxpayer who underpays.

If you have underpaid your taxes, you'll need to get IRS Form 2210, read the directions, and do the daunting and complicated math. On the other hand, you can just file your return and wait for the IRS to do the work and send you a bill.

IRS tax payment options

The filing deadlines for individuals is April 15th (April 18th for 2016). One well-kept secret, though, is that if the IRS owes you a refund, the filing deadline is moot, because April 15th is the date when all arrears in tax payments are due. Late filing in cases where the taxpayer is owed a refund only results in a delay of said refund.

On the other hand, taxpayers who owe the IRS, have a number of payment options:

  1. Pay it by check and include the check with the return.
  2. Pay online directly from a bank account.
  3. Pay with a credit or debit card.

Choices 2 and 3 can be done online. See the IRS webpage, Payment Options: Pay Online, Installment Plans and More for details and other options available to you.

What if I am late making the payment?

paying tax debt owed irs helpThe April 15th deadline (for most taxpayers) starts the clock on interest and other penalties on unpaid tax. The IRS calculates the interest from the due date of payment, based on the federal short-term rate plus three percent--and the interest compounds daily.

Then there are failure-to-pay and failure-to-file penalties, which can amount to a maximum of 25% of the amount owed. IRS Tax Topic 653 has details on late tax payments and the associated penalties.

You can apply for a tax filing extension but…

The big but here is that, although you can file for an extension for completing your tax return, if you owe tax and want to avoid penalties, you must pay the amount due by April 15th. IRS Form 4868 has instructions on obtaining an automatic six-month filing extension.

Installment Agreements with the IRS

Taxpayers financially unable to pay the tax debt immediately can make monthly payments by entering into an installment agreement. Paying the tax debt in full through such an approved agreement can reduce or even eliminate the payment of penalties or interest, but you must file all required tax returns on time.

Read more and download the IRS Installment Agreement forms from the IRS Payment Plans, Installment Agreements webpage.

What happens if I don't pay?

Non-payment of taxes will set in motion a series of written notices from the IRS. Failure to resolve the indebtedness can result in liens, as well as bank account and business asset forfeitures, all of which have the full force of federal law backed up by court orders.

If you need help...

Tax planning is all about mitigating last year's impact on your personal and business finances, as well as starting off on a much better footing for this year and beyond. Contact Dukhon Tax and Accounting by email or give us a call. We specialize in both personal and small business tax accounting.

Quarterly Estimated Taxes: What they are, What they are for, and Why you may need to pay them

Estimated taxes are commonly paid by those who are self-employed or have unconventional income, such as income from stocks and bonds. Those who are on salary and receive a check from payroll generally pay their estimated taxes through their company; their income tax is withheld from each check and then filed by the business. Those who do not receive salaried checks must complete these calculations and payments themselves.

Who Needs to Pay Estimated Taxes?

estimated tax payments for store owners entrepreneursGenerally, any individual who will be expected to owe taxes of $1,000 or more when a return is filed will need to pay estimated taxes. For corporations, the threshold is lower; corporations must pay if they will owe taxes of $500 or more on their return. Accounting and tax services can make the process of filing estimated taxes much easier, as they can calculate the amount that is likely to be due and make sure that the payments are sent in on time. If estimated tax payments are late, an individual may incur significant penalties when they file their taxes for the year.

Who Doesn't Need to Pay Estimated Taxes?

Any individual who had no tax liability for the prior year and has been a US resident for that year will not need to pay estimated taxes. Further, those who work in the farming industry have unique qualifications regarding estimated taxes. Anyone who is on payroll and has state and federal withholdings taken out of their paycheck does not need to pay estimated taxes; they essentially already are, but through their employer. Having multiple W-2’s may cause you to owe taxes at the end of the year if your withholdings are not enough to cover your liability.

How Do Estimated Taxes Work?

Estimated taxes are paid on a quarterly basis and are estimated based on the individual's income and tax bracket. If the individual does not pay enough, they may be charged a penalty.

Generally, if the quarterly estimated tax payments have been correct, the individual will not need to pay any additional taxes on the annual tax return. However, the annual tax return still needs to be filed. If the individual's estimated tax payments were more than necessary, the individual will get a tax refund. Usually, it's best to overpay slightly on estimated taxes rather than to underpay.

It is important to note that estimated tax payments are not an additional payment on top of annual tax returns -- they are simply a way of paying taxes in advance to avoid a hefty tax bill at the end of the year, in addition to fines and penalties.

Are you wondering whether you need to pay estimated taxes? Contact Dukhon Tax and Accounting today to find out more about when estimated tax payments are needed and what you need to do to get started immediately. With proper tax planning or even a simple conversation with your CPA, you can avoid the surprise of hefty bill on April 15th. There may not be time to change your situation for 2015, but you can start 2016 off right.

February Student Special from Dukhon Tax!

It’s tax season again and one of our firm’s favorite things during this time of year is to give a little something special to Boston’s students. For the Month of February, we are running a Student Special for tax preparation! If you are a student and have a qualified basic tax return, Dukhon Tax is offering a student special price of $100 for tax preparation and filing during the month of February.

What is a Basic Return?

A basic return includes Form 1040 and MA flings, with up to 4 Forms W-2, education credits, student loan interest and no other deductions or schedules. A valid student ID or, other proof of being a currently enrolled student, is required to qualify for this special.

Why use Dukhon Tax?

We were once students too and we know how busy you can be. As such we’d like to show how much we appreciate the great minds of our local college community by offering a special price on tax preparation and online tax filing. Instead of using online tax software or waiting in line at the big-box tax store, come see us in February and take advantage of this special.

How does it work?

  1. Contact us and let us know you are looking for the $100 Student Special
  2. Fill out a quick questionnaire about your taxes
  3. Upload your tax documents to our secure Client Portal
  4. Let the magic happen and have us prepare your returns while you cram for that exam or go to a career fair.
  5. Once the returns are prepared and ready, you will receive a copy to electronically sign
  6. We will file your returns and you will receive your refund.

School can be hard, but taxes can be easy. Choose Dukhon Tax for your 2015 tax preparation and come see us in February for our student special. We look forward to serving our local students!