4 Things You Should Know if You Owe the IRS
Updated: Oct 12, 2020
Receiving a notice from the IRS has been known to do its fair share of making taxpayer's blood pressure rise. It is easy to feel like you are the only one and that they will be knocking on your door at any moment to carry you off to jail. The truth of the matter is, you're not alone. More than 18 million individual and business taxpayers owed the IRS money in 2016.
Every spring about one out of every six individual clients files a tax return with a balance due. Unfortunately a lot of those people cannot pay. Contrary to popular belief, the IRS doesn't want to ruin your life and take all of your property. However they will exercise their right to seize property and garnish your wages if you choose not to deal with your notices from them. Here are 4 things that you should know if you owe the IRS.
1.File your return on time, preferably before the due date.
If you know that you will owe, go ahead and get ahead of the game and deal with it. It is easy to just "ignore" it but it will not go away. The IRS will catch up with you. Not filing actually will only make your situation worse because you will get hit with a high failure-to-file penalty that can add up to 25% of your balance on to your tax bill.
2. Don't file an extension and think it's over.
The IRS does offer extensions to taxpayers. However these are an extension to file only, not an extension to pay! If the balance is not paid by April deadline then interest begins accruing on the balance owed until it is paid. This late payment penalty is generally .5% of the balance each month and can be up to 25% of the balance. Just like anything else, there is an exception. If an extension was filed and 90% of the balance was paid by April they may not face the failure to pay penalty if the remaining balance is paid by the extension due date. However, interest will still accrue on the balance due.
3. You have payment options with the IRS.
As I mentioned before, the IRS is not set out to ruin your life but they will so do not make them flex that muscle. You can avoid this by getting into an agreement with the IRS. They have different options for you to pay your balance if you cannot pay it in full. The Installment Agreement is the most common arrangement that can be made and depending on your situation there are a few kind available. Also dependent on your situation the IRS may still file a tax lien to ensure that they are paid. The upside to this is that you will avoid levies and your passport will be safe!
4. The IRS has 10 years to collect.
Yes, you read that correctly. The IRS has 10 years to collect an unpaid balance from you. So "ignoring it" absolutely will not work. This 10 years begins from the date your taxes are assessed. If you cannot pay the IRS before the 10 year statute to collect expires they typically write off the remaining tax owed as well as the penalties and interest. This is the reason that taxpayers are required to file detailed financial statements and other documents to prove they cannot pay the IRS with assets and income.
Knowing that you have options and what steps to take helps to ease your mind and that blood pressure! If you aren't quite sure where to start on a plan of action to tackle your IRS debt I would love to chat with you. As an Enrolled Agent I'm licensed by the IRS to handle these types of situations and I love empowering people to continue living their life while putting their tax debt behind them. Book your free 15 minute discovery call with me today or shoot me an e-mail at email@example.com .
Timalyn S. Bowens EA is Louisville's Tax Expert and will work hard to find a legal solution that is customized for you!
When you are facing questions regarding your personal or business taxes, working with a professional makes all the difference. At Bowens Tax & Bookkeeping Solutions, we serve our Louisville-area neighbors by providing the tax services and knowledge needed to succeed. We are here to assist you with tax preparation, tax representation, tax planning, and more. Visit our website at www.bowenstaxsolutions.com for more information.
27 views0 comments