Ben Franklin once famously said, “In this world nothing can be said to be certain, except death and taxes.” His words are as true today as they were in the 18th century.
As Americans, we’re required to pay taxes. Unfortunately, though, problems with the Internal Revenue Service (IRS) are common. For 2016, they audited almost 1.1 million tax returns. During the same year, they also assessed $26.5 billion in civil penalties.
That being said, it’s painful when you’re on the receiving end of their inquiries! Not paying your taxes can result in stiff penalties. The IRS can also place a Federal tax lien against your property or seize it and your assets.
That’s scary stuff. But if you paid your taxes late (or not at all), there are solutions! Below we’ve got seven tips for resolving your tax problems. Read on!
1. Don’t Ignore Your Tax Issues
It seems like a no-brainer, but don’t ignore correspondence from the IRS. Yes, it’s frightening when they contact you, but your problem won’t go away by ignoring it!
Most of the IRS’s requests are time-sensitive, so you’re setting yourself up for bigger problems by disregarding them. What’s more, it might not be as bad as you think!
They could be asking for nothing more than additional paperwork or information. Or, the IRS might even owe you money! You never know.
But, your best policy is to see what they need from you and go from there.
2. File Your Taxes
When you don’t have enough money to pay your taxes, you might be tempted not to file them. There are several reasons why that is a mistake.
First, it’s better to file late than not at all. Even if you can’t pay.
That’s because the failure-to-file penalty is often greater than the one assessed for failing to pay. By paying even a little bit of what you owe with your tax return, you are reducing future fees and interest.
Second, the penalty for filing late is 5% of the unpaid taxes per month that your return is late. You can see, then, it’s tied to when you file your taxes.
Filing, therefore, will limit any financial damage. And, anyway, maybe you don’t owe as much as you think you do. But, you won’t know unless you file.
3. If You Can, Pay Any Back Taxes Owed
If you can’t pay this year’s taxes, you might not be able to cover previous years’ either. But, if you can, do so.
That’s because, when you contact the IRS (see below), they’ll be much more likely to work with you if only this year’s taxes are a problem.
Remember, the IRS is made up of people, too. They understand that sometimes things happen. But, if you’re not paying year-after-year, that looks more like willful negligence.
It’s best, then, to get everything in order before reaching out for help.
4. Do Not Be Afraid to Contact the IRS for Assistance
After you receive a notice from the IRS about taxes owed or penalties, get your affairs in order (see above). Then, contact them as soon as possible.
Remember, most correspondence from the IRS contains deadlines. You’ll end up with bigger problems if you miss those.
Not only that, revenue officers will work with you if necessary. When you call, explain your financial situation. Most likely, they’ll ask you to submit relevant documents. Then, if you qualify, a payment plan can be put in place.
Again, ignoring the problem with only make it much, much worse. In the next section, let’s go over some of the most common payment options.
5. How to Resolve Tax Problems: Payment Options
The first option you might have is what’s called an Offer in Compromise. This is where you and the IRS agree on a lower tax liability than what’s owed.
There are several reasons why the IRS might lower your tax liability. In terms of financial hardship, they’ll lower the amount owed if it’s not collectible. That means, if they see you really don’t have the resources to pay, they’ll lower the total amount.
You won’t qualify for an Offer in Compromise if the IRS believes you can pay the liability through an installment plan. An installment plan lets you pay your taxes over an extended time frame.
Short-term agreements (less than 120 days) don’t have any penalties. Longer-term agreements do, but they allow you to avoid the larger (and much scarier) consequences of not paying your bill.
It’s possible to apply for a payment plan online. That means you don’t have to talk to a person about your situation. For some people, that’s a big plus!
6. Enlist a Tax Professional to Help You
Let’s be honest. Taxes are complicated. Unless your problem is simple and easily fixable, it’s in your best interest to hire outside help.
Ask friends and family for recommendations, and find someone you can trust. It could be a reputable accountant, tax attorney, or other specialists.
It’s your job to be upfront with them about your situation. They then need the communication skills to communicate your problem to the IRS. That way, they can find the best solution for your specific situation (click here to learn more about resolving your tax debt).
7. Be on the Lookout for Amnesty Programs
Amnesty programs allow the IRS to forgive all or part of your debt. Stay informed about when and if one is offered in case the conditions apply to you.
That being said, don’t ignore your tax liability by waiting around for an amnesty program. You need to begin working down your debt, whether that’s through a payment plan or another method.
Seven Tips for Resolving Your Tax Problems
As you can see, there are many ways to resolve your tax problems. Don’t ignore them, and take appropriate action to pay your tax liability. That way, you’ll avoid the direst consequences of unpaid taxes.
Do you have tax issues with the IRS? Are you looking for an adviser or accountant? Check out this article on how to find reputable tax advisers where you live!