If you are a business owner or an individual with tax debt, there are many thoughts running through your head. What will the Taxing Authority do if I don’t pay this back? Should I file my return with a balance due? Will my receivables pay me in time for payroll? Should I pay this year’s taxes or last year’s balance? And that’s just the beginning.
Take a step back and imagine you are in a rowboat in the middle of a lake and the hull springs a leak. Water is flowing in and panic begins
to ensue. Fortunately you have a bucket and a repair kit to stop the leak. The following question then presents itself: should you begin to bail water with the bucket or try to plug the leak with the tools in your kit? What is obvious to most people is that the leak needs to stop before you begin bailing out the water. Unfortunately, when you think of this situation in terms of resolving a tax debt, people tend to reach for their bucket first.
Now, think of the water as your tax debt. Each month, more and more debt accrues, and with it accrues penalties and interest. However, you also have received tax bills from last year showing an amount due, along with scary language about levies or garnishments if that bill is not paid within a certain time frame. While the temptation would be to pay the bill with the unnerving language, don’t. Instead, concentrate on the leak – your current taxes. Without paying your current tax obligation, the Taxing Authorities will not entertain any sort of payment plan when it comes to your back tax liability. Also, with the penalties and interest that accrue with the new liability, it will be very difficult to catch up.
The moral of the story? Once you’ve stopped the leak in the boat and your taxes are current, then you can focus your attention on your back taxes and start bailing water.