Realizing you’re in debt to the IRS can be a difficult pill to swallow. Dealing with anything tax-related can make you want to pull your hair out, and almost nothing is worse than discovering you’re in the red.
Take a breath. If you need to resolve your tax debt, resist the urge to panic. This might not be an enjoyable process, but with a few simple steps and some strong coffee, you’ll make it through.
Read on for the 4 most important steps you need to get yourself out of tax debt.
#1 Waiting Will Only Make It Worse
You might already have a hunch that you’re going to owe the IRS money, even before you file your return.
If this is the case, it can be tempting to avoid filing, especially if you know you can’t afford to pay. However, this is only going to make things worse in the long run, and the sooner you tackle your taxes head on, the sooner you can start digging yourself out of the hole.
Here’s why you need to get on it:
- Interest – Interest rates on unpaid taxes can be as high as 25%, meaning no matter what you owe, you can’t afford to be late. Interest rates also increase over time, meaning there’s no time to lose.
- Penalties –There are enough facts, figures, and percentages regarding penalties on the IRS website to make your head spin. Trust us, the IRS is serious about enforcing penalties, and the financial consequences for not staying on top of your return are severe.
- Extensions – If you need more time, file for an extension. This will buy you a few months without incurring additional fees. Having this option available to you is all the more reason to pay close attention to your tax timeline.
#2 Accept that this Might be Over Your Head
Taxes have a bad rep for a reason— they’re complicated, frustrating, and require serious know-how. Even minor tax-related issues can be too complex for someone without an accounting degree. Luckily, there’s an entire industry of professionals out there who can assist you. From CPAs to attorneys, don’t be afraid to reach out for help.
Keep in mind: Although you might be hesitant to hire someone, if you owe a significant amount to the IRS, you’ll likely save money in the long run. CPAs can be expensive, but their services exist for good reason.
#3 Evaluate Your Options
At this point, you’ve reached the most important step in the process—how to pay back taxes. Luckily, you have a few options depending on your financial situation:
- Lump Sum– If you’re lucky enough to be able to afford to pay off your tax debt outright, we highly recommend you do so. It might come with some sticker shock, but you’ll avoid any unforeseen complications.
- Offer in Compromise – This option is available to you only if you can prove that it’s impossible to pay back the money you owe without causing you extreme financial hardship. Essentially, it’s Uncle Sam giving you a hall pass.
- Installment Agreement – When you enter into an installment agreement with the IRS, you set up a schedule to pay back the money over time. This is a great option because it allows you to choose either a long-term or short-term plan to pay off your debt at a rate you can afford.
#4 Know You’re Not Alone
It’s easy to get down on yourself when you’re struggling with tax debt, but remember, you aren’t alone. Every year, millions of people find themselves in your shoes, and just because you’re in hot water now, doesn’t mean it’s always going to be the case.
Cut yourself some slack, take a deep breath, and use this unpleasant process as a lesson for next tax season.
You Can Get Back in the Green
Now that you have a roadmap for resolving your tax debt, it’s time to put your new knowledge to good use. Whether you decide to hire a pro or take on the IRS by yourself, you’re ready to leap across the hurdle.
Taxes are inevitable, but struggling with tax debt isn’t.
You can do this!