If you owe the IRS, and have for a few years, the penalties and interest are piling up. This can really be a tough situation. Perhaps your income situation has changed or there was an error in your filing. Either way, you need to take care of it, and fast, to keep the penalties low.
The good news is that you can resolve your outstanding tax bill if you follow a few easy steps:
1. Verify your balance. You can request a transcript of your balance by contacting the IRS. Then review your actual tax return to make sure all the numbers are correct and that you didn’t over-report your income or under-report you expenses.
2. Minimize penalties and interest. Contact the IRS and ask what they can do to help. Sometimes they can give you time to fix the situation and waive or reduce penalties and interest for a short amount of time. The IRS can sometimes offer an abatement of penalties as well, if you write a detailed letter and explain why you couldn’t pay your taxes on time.
3. Set up an installment plan. When you set up an installment plan, the IRS can agree to stop accruing penalties and sometimes interest. Then you can pay an agreed upon amount the IRS each month until your balance is settled. Don’t miss a payment though or you could lose your agreement and have to pay back penalties. And make sure you pay future tax payments on time or you could lose the terms of the agreement as well.
4. Get an Offer in Compromise.
Sometimes, the IRS will negotiate back taxes through an Offer in Compromise. It is important to properly request and file these and there are a lot of details involved, so some taxpayers choose to hire a firm to handle these requests. A qualified tax resolution firm can also help determine your balance, minimize penalties and interest, and set up an installment plan.