Facing a bill from the IRS is not an unusual occurrence. In fact, approximately 30 percent of taxpayers found themselves with a federal bill, owing the IRS money in 2017. Finding out that you owe the IRS is tough, but being unable to pay the IRS can be terrifying.
Before you begin to panic, we recommend taking into consideration these five steps if you are facing a tax bill you can’t afford.
1. Make sure to file your returns on time.
The penalties for failing to file your returns on time can add an additional 25% to the amount you owe. Failing to file your returns on time when you owe money to the IRS will only make things worse. While we would recommend paying as much as you can up front, if you file and don’t pay, you will be hit with a much smaller monthly payment until you pay in full.
2. Keep in contact with the IRS.
Make sure that you open all mail that you receive from the IRS and respond in a timely fashion. You can’t solve this problem by burying your head in the sand. The financial penalties speak for themselves, the longer you ignore facing the IRS, the larger that bill will become.
3. Gather your financial information.
To figure out the most efficient and least painful way to pay your back taxes, you need a complete and accurate picture of your current financial position. This is a necessary practice moving forward, as organization of financial documents are key to remaining up-to-date with filing taxes and remedying any encounters you may have with the IRS in the future.
4. Do the math.
Review your financial information. Are there any assets that you can sell or borrow against? How much money do you have left at the end of the month that you could use to make payments to the IRS? This may be the point in time where you will explore outside financing options, such as a credit card or loan. Often times, interest and fees from banks or credit companies may be lower than the IRS penalties you are faced with.
5. Know your options.
Whether it’s an offer in compromise, an installment agreement, or currently not collectible status, know the requirements for each payment option and which one best suits your personal situation.
Once you’ve taken the above steps, you should be ready to contact the IRS and settle on a proper payment solution that does not put you in financial jeopardy. Remember, the consequences of ignoring the IRS come at a much greater, long-term cost than that short-term commitment to gradually paying off your debt.
If you are in need of professional assistance, TaxLane has years of experience representing taxpayers before the IRS. We are in business to provide guidance and expertise, but above all, to provide better financial futures for our clients.