Tax debt is a serious issue, and it shouldn’t be ignored. If it is handled the right way, it can be relatively painless. However, a failure to address tax debt issues can have significant consequences.
The IRS could start by adding various fines and interest to the debt. With fines and interest, your tax bill can grow much larger. However, it can get worse than having a larger bill.
If you ignore the problem too long and fail to comply, the authorities can take steps like garnishing wages and seizing assets. They can do things like take money from your bank accounts, seize vehicles and other valuable items, and take your home.
As you may imagine, IRS asset seizure can be devastating for the individual or family involved. The financial impact can follow a person for years, and it can also be a source of emotional trauma.
But what can you do to avoid an IRS asset seizure? This post will look at some tips to avoid this outcome.
File Your Taxes on Time
The first tip is the simplest. Make sure you file your taxes on time. This is true for both individuals and businesses. If you want to stay on the right side of the IRS, make sure you follow this step to stay in compliance. If there is a reason you can’t file on time, make sure you file for an extension. Most of us can get a six-month extension with no problem.
Pay in Full and On-time
This rule is similar to the first – if you want to avoid problems with the IRS, pay your bill on time and in full. Taxpayers should recognize that an extension for filing is not an extension to pay. You are still expected to make an estimated payment. Once you are late on tax payments, the IRS will start adding fines and interest.
Find Ways to Cut Your Tax Liability
One way to prevent issues with the IRS is to make sure your tax bill is as low as possible. How can you achieve this? By finding ways to reduce your tax liability. Consider all the possible deductions that may be available. If you operate a business, there could be many ways to save on taxes. You should also look into the many tax credits offered by the IRS.
Work With an Accountant
Some people have simpler tax issues than others. For these people, doing your own taxes is easy. However, many of us have returns that could be more complicated. If you want to avoid issues, you should work with an accountant. An accountant will understand all your tax forms and help you find all the relevant deductions and tax credits. Professionals like accountants and bookkeepers can be especially important for businesses.
Review Past Returns
Another step that might be helpful is to review your past returns. Maybe you are more knowledgeable now, or you realized there might be an issue with a past return. Dig up your old filings to make sure everything is in order. Just because the IRS hasn’t contacted you about an issue, it doesn’t mean one doesn’t exist. If you do find problems, take the time to amend your old returns. In some cases, you might even find that you overpaid.
Handle Back Taxes ASAP
Whether it is by a letter from the IRS or your own investigation, you need to handle back taxes as soon as you discover the issue. The longer you wait, the more it will cost. Being proactive can also buy you a little goodwill from the IRS. If they see that you are serious about addressing the issue, they will be more likely to work with you.
Set Up a Payment Plan
What happens if you realize you owe back taxes but can’t pay the entire bill right away? There is no need to worry. The IRS has rules for setting up payment plans to cover outstanding tax bills. The payment plans do come with fees and interest, but they can be a way to avoid the worst consequences of tax debt. However, not all tax debt is eligible for installment plans.
Understand Your Options
You should also understand the options you have for managing back taxes. There are different options for installment plans. Some people might also be able to arrange an offer in compromise with the IRS. If you can prove there is no way for you to pay, the IRS might put a delay on collection efforts. Some of these solutions are difficult to achieve, but they do exist.
Consult Tax Relief Specialists
Some tax issues require the attention of a professional. If the IRS is sending demand letters or threatening to seize assets, you should look for IRS tax relief companies. They can help you make the necessary filings to prevent IRS asset seizure and wage garnishment. They might even be able to negotiate better payment terms. While there is no guarantee, there are tax issues you shouldn’t face on your own.
Falling behind on your taxes can feel overwhelming. The tax bills can be large and seem insurmountable. However, there are ways out of these situations. You just need to address them head-on instead of ignoring them.