For successful IRS tax negotiations, understanding your tax obligations and complying with them is crucial. One of the first things that you should know is the importance of paying IRS estimated tax payments. What are estimated taxes? What does it mean to be current with your tax payments? Below you will find the answer to these questions and also learn why it is a requirement for obtaining any tax resolution from the IRS.
So what is current compliance?
While you are trying to negotiate with the IRS agency, the current years’ is passing by, right? In order to become eligible to resolve past year’s tax problems, the IRS require you to be in current compliance with tax deposits and/or estimated tax payments. It means you need to “pay as you go” by sending the required quarterly estimated payments for the current year to the IRS, which is due on April 15th, June 15th, September 15th, and January 15th.The IRS wants to ensure that the taxpayer does not accrue any additional tax liability.
Why is it required to become eligible for IRS payment plans?
The IRS does not want to grant any kind of payment plans such as Installment Agreements or Offer in Compromise to resolve a back tax liability unless you satisfy deposit and payment compliance. You may ask, “Why the IRS just include the current year’s taxes into the payment plan that I am applying for as I’m going to payback, anyway.”
It is not surprising to know that this is the one of the biggest misconceptions surrounding tax debts. Paying your IRS taxes is not the same as paying your credit card bills, where you can pay the minimum amount every month and continue adding new liabilities. No, it does not work that way. When you incur a new liability on a future return, you break the terms of their resolution plan. And furthermore, you will lose “goodwill” with the IRS that will give you the hardest time to do any negotiation with them.
The same rule applies for accepted and paid IRS Offer in Compromise. If your Offer is accepted by the IRS, you must stay in compliance for the next five years by filing and paying your taxes on time (that includes estimated taxes if you are required to do so) and paying the offer amount. Otherwise, the IRS will rescind your OIC and all your original liabilities will come back.
Likewise, you must be current with your estimated tax payments, (and also your federal tax deposits if you are an employer) to qualify for an IRS installment agreement. If you fail to do this, your application will be voided and you’ll feel like all your efforts have been wasted.
Most people, who are seeking collection alternatives such as payment plans and tax settlement programs find it difficult to meet the IRS requirement of staying current with their estimated tax payments. The deposit requirements for wage earning (W-2) individuals tend to be simpler than that of a taxpayer who earns non-W-2 income or business with unpaid payroll taxes. Whether it’s simpler or harder for the taxpayer, tax liabilities have to be paid.
How to be current with your estimated tax payments
If you are an employee, one best way to eliminate the need of paying quarterly estimated taxes is by increasing the income taxes being withheld from your W-2 wage. But if you are an employer or run a business, in addition to the quarterly estimated tax deposits, make sure to be current with the required 941 payroll tax payments (and possibly with its 940 unemployment tax deposits). If you’re self-employed, avoid owing the IRS on tax day by paying your current year taxes and all of your quarterly estimated payments. These can help make you eligible to secure an affordable resolution to your IRS tax debt.
So when it comes to paying your tax, which is better – pay old tax debts or current year obligations? Settle your other debt or pay your quarterly estimated taxes? This is the important thing you need to understand from this article – stop digging up! It’s probably your best interest to pay your current year taxes and estimated taxes for next year first before working on old taxes. Remember, you need to get into tax compliance before the IRS will allow you to pay prior year tax obligations over time.