Paying taxes is not a pleasant experience. Especially if you know that a large amount is owed. You may believe that avoiding this situation altogether is your only option. The truth is, facing the challenge of paying your tax bill head-on is the best way to keep the problem from getting bigger. The best thing you can do is to take care of all of your taxes from the start to avoid getting in trouble with the IRS.
Knowing your options for ensuring tax compliance and the consequence of inaction is essential to understand. Saying, “I didn’t know any better” just isn’t going to cut it. Managing your taxes is an adult responsibility, and with that comes serious adult decisions to be made. Our team at Waters Hardy understands that being in trouble with the IRS is a scary prospect. However, we believe that educating yourself about the implications of owing back taxes is the first step to making it right.
Reasons You May Owe Taxes
- You withheld too little money from your pay and now can’t afford the bill.
- You have more income than usual, and the extra income is not subject to withholding.
- Self-employment tax
- Difficulty making quarterly estimated taxes (if you have non-wage income)
- Changes in your tax return, such as a change in dependents or deductions.
Finding Out If You Owe Taxes
Some people know they owe the IRS and simply put off payments. Others know they owe but don’t have the means to pay even if they wanted to. Still, there are some people who don’t have a clue whether they owe money to the IRS or not.
How can a taxpayer determine whether they have any overdue tax balances?
Here are 3 of the most common ways to discover whether you owe taxes to the IRS.
- Mail Notice
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- The first attempt at contacting you will always begin with mail correspondence. If you receive an email, text, phone call, or message via social media, you can be sure that you have been contacted by scammers.
- Log in to IRS.gov
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- You can access your complete tax records online, view the amount you owe, and make payments.
- Contact the IRS via Phone
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- This may be the most challenging way to get in touch with the IRS due to high call volumes and long wait times. However, you might get lucky and reach a real person to talk to.
The IRS Offers Payment Options
- File an Extension or Apply to Pay in Installments
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- While you will accrue interest and/or fees, you can file for a temporary extension to be met by a specific deadline or apply to repay your tax bill in monthly payments. The failure-to-file penalty is higher than the failure-to-pay penalty, so your best bet is to communicate with the IRS and discuss your options.
- Apply for a Hardship
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- You may be entitled to an exemption from the IRS if you can prove that paying the tax owed will cause an extreme financial hardship. By applying for a hardship plan, you can avoid the IRS from withholding your wages.
- Apply for an Offer in Compromise
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- This little-known federal program routinely eliminates tens of thousands of dollars in tax debts each year. You are entitled to apply and request to settle your tax debt for less than the total amount owed.
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- Debt.org claims that in 2017, the IRS accepted 25,000 of 62,000 proposed Offers in Compromise. That’s a 40.3% approval rate, amounting to almost $256 million. The average dollar amount of the accepted offers was $10,234.
- Borrow from your 401 (k)
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- Although not an ideal option, some plans allow for a 50% loan, with a $50,000 maximum, and you must repay the money within five years.
- Pay with a Credit Card
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- This offers the most control and flexibility to make payments. The disadvantages are that some cards come with higher interest rates than your tax debt interest. However, higher credit card balances could negatively impact your credit score.
Mistakes to Avoid if You Owe the IRS
- Don’t avoid the IRS
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- This is never a good idea. Even if you can’t afford to pay the complete tax bill, or can’t pay on time, don’t put off filing. The consequences of paying late fees and interest rates are more significant. So, it is a good idea to contact the IRS and set up an extension or payment plan.
- Don’t make a rushed payment decision
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- Take your time to compare interest rates, fees, and repayment terms for each payment option you are considering. The cost of borrowing may serve to compound your debt rather than offer relief.
- Don’t ignore the penalties the IRS imposes
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- No one in the United States goes to jail for failure to pay taxes, despite what you may have heard. However, there are other measures that the IRS can take to make your life pretty miserable.
The following is a sampling of what the IRS can do if you fail to resolve your tax issues:
- File a tax lien against you
- Levy your bank account
- Garnish your wages
- Close down your business
- Seize and sell your home
- Damage employment and business relationships
- Assess you personally for corporate employment taxes
- Put you in a monthly installment payment arrangement you can’t afford
- Contact your banker, neighbors, friends, and business associates concerning your tax liabilities.
- Go after other people to whom you have transferred your assets.
Get Your Tax Situation Under Control with Help from Waters Hardy
Waters Hardy is a group of competent tax planning and compliance experts who can help you address your tax problem and figure out a way to make it right quickly. If you need some financial advice from a well-rounded and experienced team, look no further.
With our professional tax preparation services, we can help turn your situation around. We can help you determine the best way to proceed and develop a personalized tax plan. This way you can feel confident and be at ease knowing the money owed is under control. There’s no tax problem too big for our tax experts to solve. Contact us today.