Tax liability can have you make wrong choices. However, the IRS has been helpful to some people in difficulties such as these. For example, the unemployed and people running small business will benefit from the ‘fresh start’ initiative. In fact, their installment agreement will ensure that there is easier and rational payments made.
Doug Shulman, the IRS commissioner stated that the agency has a duty to work with troubled taxpayers to meet their tax liabilities. Taxpayers have to understand the penalties against defaults arising out of failure to pay taxes on time. For example, 5% of unpaid taxes will be imposed against returns filed late on a monthly basis.
» The analysis for such failures is done at a lower limit of 0.5% and upper limit of 25% each month.
Therefore, if you are unemployed or self-employed, you will have about six months delay for you to pay your taxes. This will only apply to taxes due in 2011 and only if you had requested for an extension through IRS form 4868.
This form however does not excuse you from paying due taxes.
The initiative permits the delay to run up to 15th of October. You will need to show that you have been unemployed for more than 30 days continuously in 2011 or before the 17th of April 2012. Incase of self employment, show that your business earnings has dropped for more than 25% because of the economy.
Form 1127-A can be found at the IRS website: IRS.gov, should help you apply for the program and is due in April 17th.
You should be aware of a couple of things. For example, the earning and time limits that will accrue penalties.
Another thing to be aware about is the compounding interest payable on unpaid taxes.
If you do not have a financial statement then you should know that the threshold for the part payment has been increased by the agency. The fines are lowered, the interest will still be compounding.
In such cases, the IRS will increase the time for your part payment when you owe $50,000. The time can be increased to 72 months. This extended time can only be permitted if you consent to a monthly direct–debit payment.
This agreement can be set up online. To get an approval, you will need to have filed your returns and avail your personal details.
It is necessary that you file your tax returns even if you may accrue tax liability. Try not to make decisions that are irrational. Consult with the IRS through their websites and understand their conditions to qualify for the initiative.
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