Some people look forward to tax season every year because they expect a sizable refund. There are even sales events at retail stores and car lots that are designed to maximize your refund and ensure that you will spend your extra money at their store. This is not the case for many Americans. Tax debt is a serious matter and it is important that it is handled responsibly or it can negatively affect your credit, future income tax refunds and even put you at risk for incarceration. This article will offer you the best way to manage your money and time when you owe the IRS money.
Don’t wait till April 15th
It is tempting to procrastinate. This is however one of the biggest and worst mistakes that people make when they owe the IRS money. Do not wait until April 15th to file; file as soon as you have received all of the pertinent tax information. This allows you to start making payments and eliminate fees and compounding interest. There will also be extra time available to get the money together to make a payment before the April 15h deadline. It is a requirement that all tax documentation be sent to you on or before January 31st; so you could start filing as early as February 1st.
Review your returns
It is a good idea to review your returns and check for mistakes. There are a shocking number of people who file incorrectly resulting in missed deductions and increased debt. It is your responsibility to file your returns correctly or you can hire a tax preparation professional to handle these details. This is especially important if you feel that you may owe the IRS money. There are a number of tax preparers that will even look over your taxes from previous years and look for corrections. They often find deductions that result in a refund. There are a number of deductions that you may qualify for:
- Home purchase: Taxes and fees associated with buying a new home and currently owned home
- Education expense: There are tax programs that assist students and families with book, fees and course costs.
- Energy efficient upgrades: If you purchased a qualifying energy efficient home improvement or appliance, you could be eligible for a tax break
These are just a few examples, carefully look over and take the time to understand these complicated forms. It is necessary that you have or provide documentation for anything that you.
Make the dreaded call
Don’t wait for the tax collectors to start calling you. It is easier to get them to work out a payment arrangement if you are proactive. The IRS has officers known as Revenue Officers or RO. They are allowed to make visits to your home or place of business and they can seize assets, freeze bank accounts in an attempt to collect on the owed debt. A lien can be placed on you at the county court house and this will prevent you from taking out any loans until the debt is satisfied. It is important that you do not over promise and adhere to all agreements that the IRS establishes with you.
- Installment Plans: If you find that you owe the IRS money in the amount of $10,000 or less then they must grant your request for an installment plan. At $25,000 or less, then you are legally entitled to file for a request to make installment arrangements. You must file a request on form 9465 and follow the instructions clearly and accurately. When your tax debt is over $25,000 then you will file form 433-F. These forms will help the IRS identify the most efficient way for you to settle your IRS debt. There can be fees and high interest owed, so the more quickly that you can pay this off, the better.
- Offer in Compromise: There are situations when the tax debt owed is so great that you may never be able to repay it or you may not be capable of repaying it in a reasonable time frame. The Offer in Compromise is a program that allows you to settle the debt for less than you owe but they only approve about 20% of these requests. You must prove that you are unable to pay, do not have the income or the possibility of future income to pay the debt back. This program is ideal if you are injured and unable to work and you owe the IRS money in large amounts.
Never pay your debt off with a credit card. The interest rates on installment plans with the IRS are much less than the interest rate of most credit card companies. Also never take out a high interest loan to pay off debt and avoid borrowing money from friends and family; this can lead to animosity if you find yourself unable to repay the loan in a timely manner.