Imagine this: you walk down to the mailbox expecting to shuffle through some ads, a few coupons, and maybe an issue or two of your favourite magazine. Then all of sudden you see an envelope from the IRS (Internal Revenue Service) hiding under the rest of your mail. It’s easy to panic when you see these three scary letters. But before you run for the hills, remember that there are plenty of ways to deal with the IRS that doesn’t end with you paying excessive amounts of money. If you aren’t sure where to start, here’s how to get the ball rolling.
Determine the Deadline
Getting a piece of mail from the IRS can seem daunting, mainly because people always assume the worst. The first step when you think you may be in trouble with the IRS is to stop avoiding them, open the letter, and actually read why they’re reaching out to you. Next, check if you have a deadline for when you need to send in the requested information. If the letter requires you to take actions that you’re unfamiliar with, contact the IRS with your questions about why they are auditing you.
Settle Any Initial Unpaid Debts
The second step is to handle the tax issues quickly to avoid more penalties and not rack up any accumulating interest. If you don’t have the funds available to payback your debt or are confused on how to set up a payment plan, it is crucial to speak to a Certified Public Accountant (CPA) or Tax Preparer about your issue. They will have the answers on how to get you back on track and on the good list with the IRS. It can be scary to admit that you were in the wrong when it comes to your own money, but speaking about the issue to a professional can help you avoid even more trouble with the IRS. You are not alone and if you communicate early on with the IRS the better your outcome will be.
Stay Organized
Early bird gets the worm isn’t just a saying your mom told you to get you out of bed—it’s also extremely applicable to your taxes. File your taxes as soon as you get your 1099, W2 or other employer forms, and don’t wait until the April 15th deadline to file. If you don’t know how to put these forms together, hire a tax preparer or CPA to organize your paperwork so it can be turned in properly.
If you work multiple jobs, have a side business, are manage your own company, it can get tricky to know how to report all of your various sources of income. Have all of your forms in one spot and file them as soon as they come in, that way you can avoid getting in trouble in the first place. For business owners, keep business and personal expenses separate and make sure to pay your payroll taxes.
Know Where Your Refund Goes
If you receive a document that says “Notice of Intent to Offset,” part or all of your tax refund will be used to pay off those debts. Whether you missed a student loan payment or misfiled federal taxes, the IRS offset number will determine how much of your refund to use as payment.
“Sometimes the IRS is adjusting the offset number for you. If they do have an offset number, check your tax return. Sometimes it is just a refund from them or sometimes you owe because there are penalties and interest that wasn’t calculated by your tax preparer or yourself. Then you should send a check in as soon as possible, the longer you wait the more interest accrues,” advises Tax Preparer Jennifer Hormann of Mary Artz Tax.
Create a Payment Plan
Payback as much as you can of the original amount the IRS is requesting from you. Even the smallest amounts are better than not paying at all. If you choose not to pay your taxes, you are accruing interest from that point on and might get penalties if you don’t file an extension by the deadline. If you apply for an extension, you have by the October 15th payback deadline. If you absolutely cannot pay the full amount you owe to the IRS, sign up for an instalment agreement to pay off debt slowly.
The most important thing to do when you’re audited by the IRS is to cooperate, and the process of figuring out issues with your taxes should go smoothly.
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