Reprinted from Landings, February 2020
If you are in a tax situation that seems overwhelming, just know you have options. The first thing you need to do is meet with an expert in tax resolution (EA. CPA, or tax attorney). If they are good at what they do, they will most likely be able to help you.
The tax professional should be able to put you at ease and evaluate your situation. Hopefully you will find someone who will give you a free initial consultation to assess your situation and come up with a plan. Unfortunately, there are scammers out there, so be careful who you choose, I have had clients come to me after paying thousands of dollars to one of these national companies you hear about on TV and radio with no results to show for it. These clients were very upset and embarrassed; please don’t let this happen to you. These companies have great salespeople. ‘They all seem to do the same thing – getting you on a plan of sending them money each month, and after six to nine months they disappear with $5,000 to $9,000 of your hard-earned money.
Everyone’s situation is different; there isn’t one magic solution. Toe first step is to make sure you file the last six years of tax returns. This can take time, but your tax professional will guide you through it. Once this is done, you need to figure out your best option to get your taxes paid.The right option will depend on how much tax is owed and your current financial situation.
Don’t panic; as long as you are working with the IRS, they will work Wlth you. They understand that you probably can’t pay the debt all at once. The options are to:
- Apply for an ‘Offer in Compromise’
- Get on a manageable payment plan
- Pay the full amount if possible. The IRS may abate your penalties if you pay in full.
- Have the IRS put you on uncollectible status.You will still owe the debt, but the IRS Wlll not try to collect or levy your assets.
Although the IRS sometimes accepts an offer for pennies on the dollar, it is not an easy process, and not everyone will qualify. When I have a client who looks like they meet the qualifications of an Offer in Compromise, I make sure they are ready for what is involved. You will need to have your financial life be an open book to your tax advisor and the IRS, and the process takes 8 to 12 months. If the IRS accepts your offer, they will have expectations of you. For the next five years, you will be required to make quarterly estimated payments, file your tax returns on time, and pay the full amount that is owed each year. If you fail to do this, they will take the offer away.
Remember, you’re not alone. Many people get into tax trouble for a variety of reasons. The best thing to do now is to work on fixing the problem. It’s not easy, but with the right help, most can overcome their tax troubles; the relief from stress will be worth it.