If you receive a tax bill this summer for outstanding taxes, you are expected to pay that bill in full including any penalties and interest. If you can’t pay the outstanding balance, it is sometimes prudent to get a loan to pay the bill in full rather than to make installment payments to the IRS. This is because acceptable Installment Agreements (IA’s) require approval by the IRS. Often, what the IRS approves could be beyond your capacity to pay. Any amount sent will be deducted from your balance, however you still could be vulnerable to collection enforcement action.
The Internal Revenue Service (IRS) is the world’s most powerful collection agency. Often, tax payers that owe taxes find themselves in difficult situations due to the harsh tactics used to collect. The IRS can levy your bank account, wages, investment(s), place liens on your property, and even destroy your credit.
The good news is the IRS also offers many different resolution options designed to assist tax payers who may not be able to pay their tax liability. The bad news is a very large percentage of tax payers that owe make the biggest mistake of all. They fail to respect the IRS instead of fearing them.
As such, the first thing to do is don’t ignore any notices you receive. Most notices provide amble opportunity for you to respond, or obtain additional time to respond if needed. Next, schedule a consultation with a licensed tax professional. Licensed tax pros have demonstrated proficiency at understanding how to apply the rules that govern various tax scenarios and compliance issues.
Another important step is to review the tax return(s) from which your tax liability derived. Simple mistakes, like claiming income or deductions twice could cause you to miss eligible deductions or increase your tax liability. This could be easily corrected by filing an amendment.
If your liability has been caused due to underpayment and you’re a W-2 employee, make changes to your withholding amount to ensure that you don’t create another tax bill moving forward. If you are an independent contractor who receives 1099’s, ensure that you make estimated tax payments moving forward. This will go a long to show that not only have you corrected the problem, but you plan to be compliant moving forward.
In addition, inquire as to how to minimize penalties and interest. Owing a tax liability can be challenging enough without added assessments that could increase your tax bill significantly. You may qualify for exceptions to underpayment of tax penalties, or penalty abatement. Finally, don’t panic. If you respond reasonably to notices and are honest with the IRS, they are not bad creditors to deal with. If all else fails and you can’t afford professional assistance, contact your local tax payer’s advocacy. You may qualify for free assistance.