Being in debt to the IRS can be scary, regardless of how much money you owe, but ignoring the debt will only make the problem worse. So, what do you do if you already owe the IRS money for 2015, and you’ve just found out you’ll owe again in 2016? Let’s take a look at some critical dos and don’ts for handling your debt.
Do file your return.
If you already know you’ll owe again for 2016, you might consider avoiding filing your taxes at all. However, when you don’t file by April 15 (although it’s April 18, this year), the IRS automatically charges a five percent “failure to pay” penalty for every month the agency doesn’t receive your taxes–up to a maximum of 25 percent.
Do immediately contact the IRS.
If you already have a payment plan for your prior debt, the IRS can help create a new installment plan that includes the additional amount. You will be responsible for one monthly payment, and the IRS gives you 72 months to pay your tax debt in full. Keep in mind that penalties and interest continue to accumulate. Also, if you receive a refund in a subsequent year, the IRS will apply that money to what you owe.
Don’t ignore the consequences.
Aside from tacking on interest and penalties, the IRS can take additional forms of action against you if you neglect to file your taxes or make payment arrangements. The agency can legally cancel your passport, garnish your wages or place a lien against your property.
Don’t take on extra debt to pay.
It might be tempting to charge your tax debt onto a credit card, taking out a personal loan or borrow against your home equity, but doing so could make your financial situation worse, if you’re not careful. Take time to compare repayment terms, fees and interest rates to make sure that whether borrowing to pay your taxes is a smart financial decision.
Taxes are stressful and complicated–and even more so if you have current and new debt to pay. But the best course of action is to tackle your debt head-on, and call Highland Tax Group, Inc.