Guest Post
Every week, there’s another celebrity, athlete, business owner, or even next door neighbor in tax trouble. Millions of American taxpayers are dealing with tax debt hanging over their heads and concerned about how it will affect their future. Many people get in tax trouble for a number of reasons. They lose the paperwork, they couldn’t pay, or they forgot about it. Sometimes illness, family crisis or depression plays a role. The list goes on and on. The good news is there are many options to help wipe away this debt. Here’s are five steps to take when in tax trouble.
- Know Your Rights.
Taxpayers and businesses may not realize they have the right to be represented before the Internal Revenue Service and state departments of revenue. There are only three licensed professionals that can help you when in tax trouble: Enrolled Agents (EAs), Tax Attorneys, and CPAs. In most instances having representation can buy you time to gather information needed to correspond with the IRS.
- Make Sure Any or All the Debt is Yours.
Believe it or not, the IRS sometimes makes mistakes. There are various reasons you could receive letters from the IRS in error and either don’t owe as much as they think you owe or don’t owe any of the debt at all. We’ve had a few clients come to us and say “I got this bill from the IRS so I just paid it”. This is a big mistake. Once reviewing their past returns, account transcripts and providing a comprehensive tax account analysis, they owed less than half of the bill the IRS said that they owed. Great news, right! Absolutely. Thanks to our professional help, we were able to assist them in recovering their money faster. Identity theft continues to be an issue in our society. If you go to file a tax return, discover that a return has already been filed in your name, and you owe taxes on this fraudulent return, you may be a victim of identity theft. Though the IRS should have caught these types of mistakes, the burden is now on you to prove the debt is not yours.
Note: Marriage or Divorce Can Generate More Debt. If you’ve divorced a spouse that had or has tax debt, the IRS may believe you are responsible for some or all of the debt. This holds true for newly wedded couples filing married filing joint tax returns. Though some of the debt may be yours, but don’t get caught holding the whole bag. Do you have a business? Let’s say your business partner was responsible for writing the tax check but they didn’t. What about the bookkeeper that ran off with the money? If we can prove the onus was not on you to pay the taxes, then you may be off the hook. The IRS will come after you in all of these instances and it will be your responsibility to prove that the debt is not yours. Seek help from an experienced tax professional to analyze your unique circumstances.
- Respond Quickly.
The IRS usually gives you 30 days to respond to most letters. Procrastination in responding can lead to the IRS thinking that you don’t intend on handling your tax bill. Don’t ignore the letters. The problem won’t disappear. It will grow into a larger problem. Larger problems will result in a bigger tax bill. Procrastination can also lead to wage garnishments, bank levies and liens on your most valuable possessions – houses, cars, land. The IRS will contact your employer and banking institution to DEMAND any money you have or that is coming your way. Know that the IRS doesn’t want you house, your car (though they will take both), your cat, dog or first born child. They want the money. Even if you owe money and can’t afford to pay, you can be placed in a properly structured payment plan. Don’t let them take everything you’ve worked so hard for. Seek professional help as soon as you receive a letter.
- Stop believing those “Pennies on the Dollar” ads.
I’m sure you’ve heard “If you owe the IRS $10,000 or more.” I hate those commercials of false hope! Because of those ads, many have a mindset that if they call that phone number they can settle a $50,000 debt for $5. Ninety-five percent of the time, this is not the case. Yes, there are plenty of instances where the IRS will accept less than what you owe. But your circumstances have to meet stringent criteria and most people don’t meet the criteria.
- Take the necessary steps to keep out of tax trouble!
One of the most dangerous things to do after getting out of tax trouble is to become a “repeat offender”. If you’re in a properly structured payment plan and stop paying your tax bill, you could be setting your bank accounts up to be legally robbed. The IRS could demand all the money you owe immediately plus additional penalties and interest.
Take the necessary steps to stay out of trouble. Work with a tax professional to file your business and personal taxes on time, and request tax filing and payment extensions when necessary. Invest in a tax account monitoring service that will alert you when you receive correspondence from the IRS. This is especially helpful for business owners and taxpayers who are constantly on the go. Don’t be afraid to seek the help of a tax professional. This should ensure you stay off of the IRS radar.
About the author:
Deltrease Hart-Anderson is an Enrolled Agent, tax experts authorized by the U.S. Treasury Department to represent taxpayers before the IRS. She’s the CEO of www.thetaxdebtsolution.com
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