While not every tax return ends with a refund, there are more than a few times where there is a debt to the IRS. But if the bill has grown, or you have debt from several years, it is important to find the best way to work with the IRS. To avoid potential collection efforts by the IRS, you need to be active in working to address this debt. Consider consulting with a tax professional or accountant to determine the best options for based on your individual circumstances, such as L. James & Associates in Denver, CO. Below are four steps to follow in determining how much you owe and how to reduce your tax debt to zero.
What Do You Really Owe?
For many individuals, one line on a form can lead to a significant tax liability, due in part to missing tax benefits you may have qualified for. Therefore, it is best to compare your tax returns from one year to the next. If your tax situation has not changed, but your tax bill has grown, it might be worth exploring to find out why. Consulting with a tax professional can assist you in determining if your return reflects all the credits and deductions that you are entitled to.
Additionally, a tax professional can determine if any errors were made in the completing of your tax form. If you were notified of a debt by the IRS, be sure to ask for clarification and work with your tax professional to resolve any issues on your return during the year in questions.
Installment Plans
The IRS offers the option of using an Installment Agreement Request. For individual taxpayers, this will give them the ability to set up a payment plan with the IRS. However, the payment plan that you are eligible for will depend on how much tax debt you have incurred. Keep in mind, the IRS does set limits to how long these repayment periods can be. You must also agree to comply with all tax laws and that you have not been part of an installment plan within the last five years.
Offer in Compromise: Negotiation Option
Finally, the IRS does offer an option to negotiate a lower tax liability. However, you will need to offer the IRS at least as much as your net worth. Working with a tax professional can help you assess if this course of action is necessary in your particular circumstances. But consider that this can be similar to a bankruptcy and is often considered a last resort.
Reduce Penalties and Interest
There are three ways to reduce your penalties and interest, particularly if you owe a larger tax liability. Consult with your tax professional to determine your eligibility for any of these are options.
What Not to Do
Keep in mind, there are several steps not to take, including putting tax debt on a high interest credit card or taking money out of retirement to pay the tax debt. Instead, stay in touch with the IRS and meet any payment plan obligations. This will help you to reduce your tax debt, while avoiding additional collection actions.
Click the link below to contact one of the tax professionals at L. James & Associates in Denver, CO, to determine the best way to address delinquent tax debt or to amend any tax returns in dispute.