What to Do If You Got an Unexpected Tax Bill
Another tax season has come and gone. But for those who still owe money, it can feel like finishing a home project. Let’s say you’ve just finished remodeling your kitchen. Sure, it’s a massive accomplishment, but what about the roof? The trim in the living room? When it comes to what you owe in back taxes, it can feel overwhelming. If you find yourself in this situation, here is what you need to know to handle the burden with ease.
The best thing you can do is take action now because, over time, those penalties and interest on debt accrue. This means the longer you wait, the more you have to pay. So the day after Tax Day, start making arrangements to address your back taxes by consulting a professional. Talking with a professional will help prevent the situation from escalating further, especially if you’re facing financial hardship.
Payment Plan Options
Believe it or not, the IRS still wants you to succeed, which is why they offer the Fresh Start Program. This type of plan makes paying back the IRS a little simpler and more affordable. If you owe $50,000 or less, the Fresh Start program offers payment plans that allow you to spread your repayment out over a six-year period. What’s more, the Fresh Start program increases the minimum total of debt it takes for the IRS to file a tax lien. With a tax lien, the IRS could take possession of your property if your debt isn’t paid off in the given time frame.
Next, you need to recognize that, as a taxpayer, you have options and rights you need to exercise to get current on your taxes as quickly and efficiently as possible. For instance, you can set up an affordable payment plan with the IRS when you file. This simple task can reduce the fines and penalties you incur.
But even with a fresh start program or one of their installment agreements, there are still several factors for you to consider. First, you are required to pay off your installments within a strict time frame. Your eligibility also depends on your previous tax history. If you’ve filed in the last five years and had a payment plan in the past, you may have to meet additional qualification criteria.
Debt Larger Than $50,000
In situations of debt larger than $50,000, the IRS may require you to submit a financial package to evaluate your income, expenses, and assets. If your business has a debt larger than $10,000, it’s almost guaranteed your business will need a financial package. This will allow the IRS to thoroughly investigate your company’s finances to verify your need for a payment plan. But like any other debt, interest still compounds while you’re on the payment plan program.
What You Can Do
Navigating the IRS is difficult if you don’t know their procedures and requirements. That’s why we have prepared material that outlines an assortment of IRS tax issues. Some of the topics include “What to Do When You Owe the IRS,” “Ways to Get IRS Penalties Removed,” and “Practical Tips for Dealing With IRS Back Taxes.” To get your free copy of any one of these e-books, click here.
–Michael Raanan, MBA, EA, Former IRS Agent