6 Tips for Freelance Writers and Authors Who Can’t Pay Their Income Taxes

If you’re a writer who can’t pay your income taxes, you’re not alone! These ways to deal with unaffordable taxes may help freelance writers, published authors, and even bloggers who are struggling with financial debt.

According to the Internal Revenue Service, U.S. residents filed more than 131 million federal income tax returns in 2008. Last year, 9.7 million accounts were delinquent, which is 7% of all taxpayers’ accounts. These taxpayers owed more than $103 billion in taxes, penalties and interest. The number of levies (a key enforcement tool in which the IRS takes possession of assets to collect on unpaid taxes) rose to nearly 3.5 million in 2009.

“Depending on how much they owe, taxpayers have several different options,”
says Jeff Staley, managing partner of Freedom Tax Relief LLC. “It’s extremely important to respond to the Internal Revenue Service and take action to resolve tax debt.”

To make the most of your freelance writing income and decrease the income tax you pay, read Taxpertise: The Complete Book of Dirty Little Secrets and Tax Deductions for Small Businesses the IRS Doesn’t Want You to Know. And, here are Staley’s tips for writers in taxpayer hell…

6 Tips for Freelance Writers and Authors Who Can’t Pay Their Income Taxes

1. File a tax return, even if you can’t afford to pay it. Not filing an income tax return is a red light for the IRS. Filing a late tax return incurs penalties of 5% of the tax due on a return per month, to a maximum of 25%. In addition, late payments accrue monthly interest at 0.5 percent of the unpaid amount each month, plus interest on the balance owed. Filing one year late could add up to 38% to the original amount owed. Even if you cannot pay all the taxes due, pay what you can when you file the return or extension.

2. Contact the Internal Revenue Service (IRS) directly. Freelance writers or authors who have a hard time managing an unpredictable cash flow and who can’t pay their taxes should contact the IRS. Agency policies may offer reduced penalties for taxpayers who contact the IRS or pay a late bill voluntarily. If taxpayers have tax debt because of extenuating circumstances such as family emergency, serious illness, financial records lost in a natural disaster, or reason the IRS deems “reasonable cause,” the IRS may waive penalties after being contacted by the taxpayer.

3. Apply for a “pay in installments” agreement. Taxpayers who owe up to $25,000 can pay their balance in monthly installments. Along with the tax return, attach Form 9465 (Installment Agreement Request), or complete the Online Payment Agreement application. Setting up the agreement costs $105, or $52 if the taxpayer signs up for direct withdrawal from a bank account. At the time of application, state the amount of the proposed monthly payment and a proposed monthly payment date. The agreement will accrue interest plus a late payment penalty on the unpaid
taxes for each month or part of a month after the due date that the tax is not paid.

4. Consult an accountant or tax specialist. Authors and freelancers aren’t always as financially savvy as small business bookkeepers or accountants. Writers who who owe more than $10,000 might want to hire a tax relief specialist who can negotiate directly with the IRS on the taxpayer’s behalf, to obtain a settlement. These advisors can help obtain different types of IRS settlements, depending on the severity of an individual’s situation. Two of the most common settlement options are the offer in compromise, which reduces the principal amount owed to the IRS, and the installment agreement, which is a payment plan for the amount due, and often includes a reduction in penalties.

5. Avoid jumping into a professional or personal bankruptcy. Historically, consumers in severe tax debt might file for Chapter 7 bankruptcy protection or try to wait for the 10-year statute of limitations on tax liability to expire. However, the 2005 bankruptcy reform law significantly limited the ability to obtain Chapter 7 filings. The bill’s new “means test” requires many consumers to file Chapter 13 bankruptcy, which establishes a repayment plan rather than wiping out all debt. If tax debt is the primary problem, freelance writers might be better off consulting a tax relief specialist for help in negotiating with the IRS.

6. Keep tabs on estimated tax payments due throughout the year. Freelance writers, bloggers, authors or web writers should keep tabs on their estimated income taxes throughout the year. Double checking estimated earnings and taxes due every two or three months will prevent a nasty income tax surprise in April. Read Getting Organized for Tax Season for tips!

“You can’t hide from the IRS, so don’t try — no matter how much tax debt you have,” says Staley. “Resolving your financial debt will help you achieve peace of mind in tax season and throughout the year.”

If you have any thoughts or questions on paying income taxes (or not paying, as the case may be), please comment below…

Source: Freedom Tax Relief, a consumer tax resolution service that helps financially distressed individuals resolve IRS problems.

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2 thoughts on “6 Tips for Freelance Writers and Authors Who Can’t Pay Their Income Taxes”

  1. Laurie Pawlik-Kienlen

    Thanks for your tip — I didn’t realize it costs money to set up a payment plan! That’s ironic…and part of the reason people dislike the government SO much.

  2. Great tips! It’s funny how the IRS charges to set-up a payment plan. If some freelance writers struggle to pay their taxes, how will they afford to pay the $105? It’s a good idea to put money away each month for taxes … keep it in a separate account. This way when tax time arrives, you’ll have the money!