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What To Do If You Owe The IRS A Lot Of Money?

Jan 30

Owing a large sum of money to the IRS can be a daunting and overwhelming experience. Not only can it result in hefty fines and penalties, but it can also lead to wage garnishment, bank levies, and even legal action. However, there are steps you can take to manage your tax debt and avoid further financial consequences. This blog post will provide information and guidance on what to do if you owe the IRS a lot of money. We will discuss understanding your situation, exploring payment options, filing an Offer in Compromise, seeking professional assistance, and more. It is important to take action and explore all available options to resolve your tax debt and prevent further financial difficulties.

Understand Your Situation

Taking control of your tax debt begins with knowing the details. Thankfully, the IRS provides multiple avenues through which you can access information about what's owed. Start by visiting their website and using the "Where's My Refund" tool to ascertain how much is due back in refunds as well as view other pertinent account data. Additionally, utilize their handy “Get Transcript” feature to retrieve a copy of your transcript quickly and effortlessly - all from the comfort of your home! You can also contact the IRS by phone or in-person to request a copy of your tax account transcript or to speak with a representative.

It's important to know that the amount you owe may include not only the taxes you owe but also penalties and interest charges. Some common types of penalties include failure-to-file, failure-to-pay, and accuracy-related penalties. Interest is also charged on any unpaid taxes, and the interest rate is set by the IRS on a quarterly basis.

It's crucial to understand what you owe and to what tax periods the debt relates. This can help you prioritize which taxes to pay first and also help you understand if there are any errors on the balance owed. If you have any questions or need assistance understanding your situation, don't hesitate to contact the IRS. The IRS representatives will be more than happy to help you understand your tax debt and explain your options for resolving it.

Explore Your Payment Options

Exploring your payment options is an important step in managing your tax debt. The IRS offers a variety of payment options for taxpayers who owe a lot of money, including:

  1. Full Payment: Paying the entire balance in full is the most straightforward option, but it may not be feasible for those who owe a significant amount of money.
  2. Short-term Payment Plan: Also known as a "promise to pay," a short-term payment plan allows you to pay the balance due in full within 120 days. There is no setup fee for this option but interest and penalties will continue to accrue until the balance is paid in full.
  3. Long-term Payment Plan (Installment Agreement): An installment agreement allows you to pay off your balance over a longer period of time, usually up to 72 months. However, you will have to pay a fee to set up an installment agreement and interest and penalties will continue to accrue until the balance is paid in full.
  4. Offer in Compromise: For those who are unable to pay their full balance, this option offers a possible solution. While it is a more intricate process, settling your debt for less than the amount you owe may be one's ideal choice if one qualifies.

It's important to consider the pros and cons of each payment option before making a decision. For example, a short-term payment plan may be a good option for those who can pay off the balance quickly but a long-term payment plan may be more suitable for those who need more time to pay.

To apply for a payment plan or installment agreement, you will need to submit an Application for Installment Agreement (Form 9465) along with your tax return or a separate financial statement. You can submit the application online, by mail, or in person. You may also apply for a payment plan using the IRS's Online Payment Agreement tool.

Seek Professional Assistance

If you are burdened with a hefty amount of tax debt, enlisting the help of an experienced professional can be essential in tackling your IRS obligations. These professionals possess comprehensive knowledge of how to deal with large amounts of taxes and will provide invaluable advice on resolving this issue quickly and efficiently.

A tax attorney or an enrolled agent is a professional who is licensed and authorized by the IRS to represent taxpayers before the agency. Tax attorneys have a law degree and are trained to provide legal advice, while enrolled agents have passed a rigorous exam and have a thorough understanding of the tax code. Both can help you understand your rights, negotiate with the IRS, and represent you in court if necessary.

They can help you understand your rights and responsibilities, communicate with the IRS on your behalf, and provide guidance on how to resolve your tax debt. They can also help you explore your options for payment plans, offers in compromise, and other forms of relief.

When choosing a tax professional, it's important to do your research and choose someone who is reputable and qualified. The IRS's Office of Professional Responsibility can provide information on how to choose a qualified tax professional who is right for your needs.

Feeling stressed out by a mountain of tax debt? Don't despair - there are workable measures you can take to lighten the load. Consider your payment options and receive professional guidance, and with some knowledge and direction, you will be able to gain financial freedom swiftly. So don’t hesitate – to start taking control of your finances today!