If you are self-employed and/or someone who hasn't filed taxes in awhile, the usual catalyst of action is the IRS, who will file your returns for you when you don't file yourself and then try to collect. In recent years, as an underfunded IRS often stays on the sidelines, a self-employed artist, carpenter, doctor or lawyer is often their own motivator to act.*
And because of a quieter IRS, you have an opportunity to soberly strategize how you will file your tax returns and then settle your debt, before you move forward.
- Find out what your settlement will be first. When you file a bunch of returns, you will start a 10 year clock to collect the debt. If you can demonstrate that you can't pay back the debt (plus penalties and interest) in the 120 months, then you qualify to settle. When you contact your WATAX representative, they can go into detail, but ultimately we'll arrive at your "allowable" disposable income (ADI). If this income will pay back your debt in 10 years, then you don't qualify for an Offer in Compromise. But if you can't pay it back, then you can settle. A recent customer was determined to be able to pay $811 a month. Multiplied by 120 months, that client would have to owe more than $97320 to qualify for a settlement. He did owe more than that and so we multiplied his ADI by 12 months to get to his settlement amount ($9600).**
- Then research your IRS record. Researching your record will help confirm when you last filed and get the necessary transcripts to prepare the returns.
- Then file the six to ten years of returns. You will look to file the minimum the IRS usually asks for: six years. But you might be enticed to file more returns if you need to owe more money to settle!
But what if you can't settle? Your best bet then is to file just your most recent returns and see if you can pay all that you owe.
As your expert accountant, WATAX can walk you thru this whole process. WE usually start by researching your record and using a recent Profit and Loss statement to determine what your settlement might be.
* Remember, self-employed folks who settle their debts can restore their "social security credits" for a substantial discount. That might come in handy someday if you are nearing retirement.
** Assets are also factored in settlements, but there are exclusions for a lot of assets like household goods, your normal bank balance and tools of trade. House values are multiplied by 80% and the mortgage subtracted to see what equity is in play for your settlement.
WATAX has multiple strategies for resolving tax problems. Our job is to find the best legal resolution available for you. Learn more by Emailing us a description of your tax issue or call 1-888-282-4697.