Gain Back Control: Don’t Get Trapped
Gain back control of your IRS matters. Many people are guilty of procrastinating at one time or another but procrastinating on taxes is one thing we want to avoid. It’s the easiest way to fall behind on taxes, and it takes a lot of extra work to get caught back up.
In January, people set goals for themselves. They look at the year with fresh eyes, ready to take on the world. But by the time February rolls around, their entire perspective has changed. Most people forget about or give up on their personal goals by Feb. 14. They just lose interest or end up focusing on other things. Or they get stuck in a rut. They may have a big goal they want to accomplish, but they aren’t sure how — or they’ve discovered by solving one problem, they’ve actually created another one.
In my line of work, I see taxpayers who set the goal of getting current on their taxes. They may still owe back taxes from years past and want to eliminate that burden, but no matter what they do, they can’t seem to escape their IRS problems.
Taxpayer “Groundhog Day”
Here’s what I mean: In trying to get squared away with back taxes, they end up falling behind on the current year’s taxes. They find that they don’t have the resources or ability to take care of both. The end result is a seemingly endless cycle of owing taxes. It’s kind of like being trapped in “Groundhog Day,” except there’s no Bill Murray — it’s just the taxpayer and the IRS going in circles.
This happens to a lot of people. To complicate matters further, many people pull from retirement funds, such as a 401(k) or IRA, in order to pay their back taxes. They do this because they have no other income sources to pull from. While this strategy may help them gain back control on back taxes, it leads to other problems.
For one, the taxpayer may be hit with a 10% penalty for early withdrawal. This is on top of any fees and taxes that may accompany the withdrawal. And two, once the retirement money is taken out of the account and used, it’s gone forever. The taxpayer will have less money to draw upon during retirement years, which may negatively impact their retirement goals. One tax problem may have been solved, but more problems have been created.
How to Regain Control
So, how does someone get control of their back taxes without getting stuck in an IRS rut? It really starts with a plan of action. The IRS gives taxpayers a number of options when it comes to paying back taxes. For example, the IRS allows qualifying taxpayers to pay in installments. This eases the burden and gives a taxpayer more control over what they pay each month.
Other options include penalty removals, and the Fresh Start Program, which we focused on in our January 2021 newsletter. If you have questions or need help getting out of a tax rut, don’t hesitate to get in touch. You can visit our FREE resources page for more information. This page is packed with resources that address a number of tax problems and also includes strategies to help you get current on back taxes, while avoiding the endless cycle with the IRS.
It’s time to break the cycle and gain back control! We’re here to help you put together a plan of action and get back on track.