Five Tips On What to Do If You Owe Money to the IRS

Taxes aren’t always a delightful dinner conversation topic or the most thrilling part of running a business. However, as a responsible individual or entrepreneur, handling taxes is non-negotiable. And sometimes, despite your best efforts, you might find yourself in a tight spot with the IRS. If you've discovered a tax debt on your hands, there are steps you can take to address the situation.

Here’s how to come out on top with the IRS when you feel like you’re losing the game.

Step 1: Understand the 'Why'

The first pillar of tackling IRS debt is comprehension. Why do you owe? Have you missed filing your returns, underpaid estimated taxes, or made an error in your reporting? The 'why' dictates the 'how' of your repayment. For instance, amending your tax return might be the most straightforward solution if it's a simple reporting mistake. However, if the issue is more complex, like unfiled tax returns from several years, you'll need a more strategic approach. Understanding the root cause also prepares you for the next tax season. Identify tax planning areas needing improvement to prevent future debt. Professionals can provide illuminating insights into the practices that could have led to the situation and provide long-term solutions.

Step 2: Hire a Tax Attorney To Help You Communicate With the IRS

Consulting with a tax attorney to figure out the best plan is step two. These professionals handle daily tax debt negotiations. A tax attorney could be your advocate, navigating the complex terrain of tax laws and regulations on your behalf. They can offer strategic advice, represent you during IRS audits or in court, and bring peace of mind that a seasoned professional has your back. The IRS can offer various arrangements like short-term extensions, monthly installment plans, or even an 'offer in compromise'—an agreement to settle for less than owed if you can't afford the full amount. An attorney can help you sort through these options and choose the best plan for your situation. Hiring an attorney may seem like an added expense, but in many cases, the expertise provided more than pays for itself in the optimized outcome of your negotiations.

Step 3: Gather All Relevant Documents

In the world of IRS negotiations, documentation is your best friend. From proof of income and expenses to evidence of any extenuating circumstances, having a comprehensive, organized file can make or break your case when negotiating with the IRS. This step is about being prepared for the conversation you’ll have and ensuring that any requests for information can be answered promptly. And remember, when collecting documents, stick to the facts. Extraneous information can convolute your case. Be concise and to the point; documentation can be a powerful tool, but a scalpel, not a broadsword.

Step 4: Understand Your Rights

Taxpayer rights are a thing, and they are there to protect you. Knowing what they entail can give you confidence in your interactions with the IRS. You have the right to seek professional help, to appeal decisions, and to have payment amounts adjusted if your financial situation changes. No one expects you to be a tax law expert, but familiarize yourself with the basics to ensure that the solutions offered are legally sound and in your best interest.

Owing money to the IRS is a challenge, but it’s a challenge that can be met with strategy, understanding, and, when necessary, professional support. By following these five steps, you can get through this tough spot—and come out the other side wiser and more tax-resilient than before. Remember, taxes are a part of life, and handling them proactively is the best way to ensure you maintain control of your financial health.

If you need help managing your tax debt for the IRS, contact IRS Trouble Solvers for help.