When you think of April 15th and you can’t pay the IRS , what’s the first movie you think of?
Is it Temple of Doom?
If so, take a step back from the ledge. Even if you haven’t got the green to make the IRS monster back away, there are plenty of things you can do to protect yourself and get some debt relief from the IRS.
The first tool any Wealth Pilgrim uses to solve a financial problem is knowledge – so lets get some background.
You have two options if you haven’t filed your taxes yet. You can either file your return by the deadline and pay as much as you can or you can file an extension and pay what you can. Either way, you owe the tax starting April 15th. Filing an extension doesn’t mean the penalty and interest meter isn’t running.
If you haven’t paid the tax already, you’ll get a Notice of Tax Due and Demand for Payment from your friends at the IRS and you’ll receive that notice no later than June 1. This notice spells out your tax due plus the 4% penalty plus the 1% interest (per month) the IRS charges you. Oh….and one more thing…..the interest and penalties aren’t tax deductible.
At this point, the best step to take is to call your local IRS office. They’ll give you three options:
1. Installment Agreement.
You can request as much as 10 years to pay off your debt but the more time you ask for, the higher the likelihood that the bad boys at the IRS will place a lien on your property. This is not a good thing. Its public record and not great for your credit rating. It means that if you sell your property, the IRS has first crack atthe proceeds.
2. Temporary Delay Due To Hardship.
Contrary to popular belief, real human beings work at the IRS. If you have a hardship as a result of illness or natural disaster, they may grant you some leeway. If you find yourself in this situation, be completely honest and give it a try.
3. Offer in Compromise
If you owe so much that even the IRS realizes you can’t pay, they might make a deal and settle for less than you owe. Keep in mind that even a bankruptcy won’t cure your IRS ills. Consider credit cards and credit card alternatives if you can make a good enough deal. Bankruptcy proceedings will postpone IRS collection but it won’t stop them forever.
Two final ideas on dealing with the IRS:
First, even Indiana Jones needed Short Round to help him conquer the Temple of Doom. Get professional representation. Dealing with IRS without having professionals on your side is like trying to parachute out of a diving plane in a life-raft. Indy might pull it off…but don’t try it at home.
Second, keep the communication flowing.
If the IRS puts a levy on your property it only means they get their money if you sell the goods. If you ignore them and make the IRS gods angry, they’ll slap a lien on you – which means they’ll just seize your property. They can take your wages, bank accounts and even your VCR! Make them mad enough, and they can go after you in a criminal case as well.
Dealing with the IRS may not be as terrible as trying to escape from a snake pit…..but then again, I’ve never been in a snake pit. Do whatever you can to avoid this problem. Even if you don’t owe them money do whatever you can to avoid IRS audit flags.
Have you ever had to deal with the IRS? What is your best tip?
Neal,
Great read. As the tax deadline approaches people whom owe a lot of money or who haven’t filed yet need good information. This is definitely helpful to those people.
I’ve personally helped people initiate the phone call to work out a payment plan and have seen it be successful.
Great work!