Owe Money to the IRS?

What You Need To Do -

Step 1 - Prepare the return. Use a tax professional for this step who can possibly minimize the damage. If you have already filed, perhaps an amended return (changing your return) to add deductions previously missed would help. As I have stated many times throughout this website, I am not taking on new clients, however I can take a look at it and give you free advice as to whether or not you should amend your originally filed return. I will also advise you on who to contact if the amendment is necessary.

Step 2 - Decide how much of the tax bill you can pay-pay as much as you possibly can. Even high credit card interest is usually cheaper in the long run than IRS penalties and interest. Perhaps you can get a loan from friends or relatives. About anything is cheaper and easier than owing the IRS. Interest accrues until the bill is paid off.

Step 3 - Now, you can:

(a) Send in the return with as much money as possible and wait for the IRS to send you a letter with the remaining amount due plus penalties and interest, using the time in between (usually a month or so) to gather the remaining funds,

OR

(b) Gather your bills together and determine the maximum amount you can pay monthly in order to get the bill paid within six years. Then submit an installment agreement by going to the IRS.gov website. Type in FORM 9465 on the top right-hand search box and download the form and instructions. Prepare the form and mail either along with your return or separately. You will receive paperwork detailing your interest and penalties if your application is approved REMEMBER THEY CHARGE ABOUT $150 TO INITIATE THIS AGREEMENT--WOULDN'T YOU RATHER HAVE THAT MONEY GOING TOWARDS WHAT YOU OWE???

If you owe more than you can possibly repay the IRS in three years, call them immediately at 1-800-829-1040. They will advise you on your next step or steps-- possibly an Offer in Compromise.

Also, if you wish to start making payments immediately, type in ONLINE PAYMENT AGREEMENT in the search box. Either way you will only need to submit just a few answers to their questions. You will need both the recent tax return and the latest prior tax return you filed handy. One of the questions will ask you what the Adjusted Gross Income of your recent return was. This number is clearly labeled near the bottom of page one of the 1040 or 1040A returns. Also, you will be asked what the total tax owed was from the prior year as well as basic routine questions such as social security number and birth dates. If you need assistance, you can always call them at 1-800-829-1040.

Step 4 - Once you have submitted your Form 9465 or On-line Payment Agreement, and the IRS has approved it, STICK TO IT. Do not forget or be late! If you are late, call them immediately! DO NOT DELAY! They can (and often do) levy bank accounts, your house and other assets if you do not live up to your end of the deal. Make this bill your number one priority.

Step 5 - File any other returns as fast as possible. You may have refunds that will offset the monies owed, even on past-due returns. The IRS usually does not allow a refund on a past due return over 3 years old.

Above all - Communicate with them. The absolute worst thing you can do is ignore them. IRS agents are normally very nice and surprisingly easy to deal with.

Be aware that in some cases the IRS will agree to an Offer in Compromise, especially if you are unemployed or having major financial problems. Go to IRS.gov and type in OFFER IN COMPROMISE for links with further details. Be sure to read all applicable links listed for pertinent details.

It is amazing to me that so few people know that preparing your own installment agreement and/or dealing straight with the IRS is so easy. All it takes is time and a little effort. Most of these companies offering to do the same things for you start out by charging you $5000 or more! Isn’t a bit of time and effort worth saving that?

If you owe a lot more than $10,000 and/or you feel uncomfortable pursuing this avenue, then I would recommend that you consult with a local CPA or tax attorney for assistance.