When it comes to filing taxes, most people want to be up-to-date on their finances and have their earnings accurately reported. What no one wants is a letter from the IRS stating that they owe money. But what then?
Do not liquidate your retirement savings to pay down the IRS debt.
You might consider liquidating your retirement savings in hopes of satisfying the IRS, but the IRS itself discourages the use of retirement savings for this purpose. The agency imposes a 10 percent penalty on withdrawals of distributions of earnings from Roth IRAs before the age of 59 ½.
Do not go into debt to pay off your IRS debt.
Avoid refinancing your home or applying for a low-interest credit card to pay off your debt. Although your tax bill might be gone, you are still in debt–just to another party. Instead, the IRS encourages you to schedule monthly payments or file an extension if you qualify.
Do not agree to an installment plan unless you can actually meet your monthly goals and pay the IRS debt.
If you are eligible to make monthly payments through an installment agreement, make sure you can commit to it. For instance, if the required minimum is $50, but you think you can pay $200 a month, still commit to the $50, and pay the $200 when you can. You’ll be less likely to default or fall behind–which could then result other penalties.
Speaking to a qualified enrolled agent before paying off a large IRS debt.
Failing to consult with a professional about your debt could put you further in debt with the IRS–especially if you try to avoid the situation entirely. Have a professional speak directly with the agency on your behalf, to ensure your debt is handled properly and avoid future actions against you such as wage garnishment and property liens.
Do not avoid IRS notices.
Under no circumstances should you avoid notices from the IRS. The IRS will not go away. Instead of fearing the agency, contact them for options to pay your tax liability. Ignoring communications will only make your situation worse, and the IRS will have no choice but to take action against you.
Above all, remain communicative with the agency and seek the advice of a professional IRS enrolled agent when you are facing a debt to the IRS. If you need assistance in dealing with your IRS debt, please let us know. We can be reached at 720-398-6088.