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10 Tips for Taxpayers Who Owe Money to the IRS

10 Tips for Taxpayers Who Owe Money to the IRS - TaxACT

Have you received a letter from the IRS stating that you owe them money?

Sooner or later, chances are that you’ll get mail from the Internal Revenue Service. Nobody likes to get that thick envelope full of notices.

Before you let that letter ruin a perfectly good day, however, take note of these tips:

1. Read the letter immediately

Open it. Sometimes the hardest part of dealing with the IRS is overcoming that feeling of dread and actually reading what they have to say.

It may not be that bad, or it may be a simple mistake you can clear up quickly. It won’t go away if you ignore it.

In addition, if you don’t respond within a set period of time, you may incur more penalties and interest.

2. If you have questions, call

While calling the IRS may not be the best way to resolve a dispute, it is sometimes the fastest way to find out what the problem is.

Letters from the IRS are often long on words and short on substance, leaving you to guess why they came to a different conclusion than you did.

Picking up the phone may help you get an answer sooner, at least ending the suspense.

3. Know your rights

IRS Publication 1 explains your rights as a taxpayer.

You have a right to privacy, to professional and courteous service, and to pay only the amount you actually owe.

You can choose to be represented by someone else, such as an attorney or CPA, or to represent yourself. If you have unresolved tax problems, you can get help from the Taxpayer Advocate Service.

If your collection case continues and you disagree with the outcome or with how you have been treated, you can ask the Appeals Office or a court to review your case.

Most people you deal with at the IRS are just trying to do their job, and many can be very helpful.

However, dealing with a bureaucracy the size of the IRS can be frustrating. Knowing your rights can help you feel more confident and to make sure your rights are preserved.

4. Determine if you actually owe the money

Don’t panic and pay now, hoping to figure out later if the IRS is right.

The IRS makes mistakes. We’ve seen Form 1099-Misc or wage income counted twice, and other mistakes that drastically affect the amount of tax owed.

If you can’t figure out how the IRS arrived at a different tax amount, and it’s more than a few dollars, seek help from a tax professional.

5. If you owe money, decide if you can and should pay it off immediately

For example, if the IRS says you owe $1,000, that’s about how much you have in your checking account, and your rent is due, stop.

Paying the IRS is important, but it’s not as important in the short term as food, shelter, and the other necessities of life.

Don’t shortchange your other financial priorities.

6. If you owe more than you can or should pay, consider your options

You have a certain amount of time to respond and pay, according to the letter you received. If you can’t round up the money by then, determine how much you can pay right away.

You generally can set up installment payments with the IRS for the remainder. If you owe a huge amount of money, you may have to consider making an offer in compromise.

7. Don’t pay someone else’s IRS bill

Business partners and ex-spouses have a way of sticking other taxpayers with the bill.

The IRS generally holds all signer of a return responsible jointly and severally for the entire amount due.

However, you may be able to avoid liability in some cases.

For example, if you find out your ex was involved in shady financial deals that you didn’t know about and didn’t profit from, you may qualify to file for “innocent spouse relief.”

8. Don’t put your tax bill on your high-interest credit card

The IRS charges interest and penalties, it’s true.

However, the interest they charge is nothing compared to high interest credit cards. You’ll also pay a convenience fee for putting the bill on your card.

The IRS is a reasonable creditor, as long as you keep up your end of the bargain. You may be better off owing them, rather than a credit card bank.

9. Document everything

Keep copies of your correspondence and documentation you send to the IRS, and your responses from them.

Take notes of phone conversations and the dates you had them. If the IRS agrees to anything, get it in writing.

10. Get help

The bigger your tax problem, the more important it is for you to get qualified, professional help.

Enormous tax problems can mess up a person’s entire financial life, and the problems can work their way into other aspects of their lives, as well.

It’s worth it to pay a tax professional – possibly even a tax lawyer – if the stakes are high. The sooner you resolve your tax problems, the better.

Given the choice, would you rather owe a debt to a bank or to the IRS?

Photo credit: zilverbat. via photopin cc

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About Sally Herigstad

Sally Herigstad is a certified public accountant and personal finance columnist and author of Help! I Can't Pay My Bills, Surviving a Financial Crisis (St. Martin's Griffin). She writes regularly at CreditCards.com, Bankrate.com, Interest.com, RedPlum, and MSN Money. She is an experienced speaker and a member of Toastmasters International. Follow Sally on Twitter.