6 Common Tax Problems and How to Fix Them
I have had many new clients come to me with their heads hung low and express to me how ashamed they are of their situation. They feel as though they are the scum of the earth. Imagine their relief when I share with them that they are NOT alone – there are others out there, many others, who are challenged by the IRS. And there’s absolutely nothing to be ashamed of. Sometimes, good people get dealt a bad hand – life happens.
There are a number of very common IRS problems that are weighing Americans down. But they don’t have to – there’s ALWAYS a solution. Below are 6 common tax problems and how they can be fixed.
- IRS has calculated an additional amount of tax and I simply can’t pay it. You have many tools at your disposal when it comes to a tax balance that you can’t afford to pay. Your first step is to make sure that indeed you do owe the additional tax – the IRS is not perfect and they do make mistakes! If you do owe, you can request an installment agreement to make monthly payments. And in some cases, if you’re having trouble just paying your regular bills every month you may qualify for a status called currently not collectible. If you’re granted this status you do not have to make any payments to the IRS at all. However, the balance remains out there and accrues penalties and interest. If you simply don’t have the means to pay right now, this could be a very valuable option. You can also look into qualifying for an offer in compromise, this is where the IRS will accept an amount LESS than what you actually owe. I strongly suggest engaging a qualified tax professional (such as an Enrolled Agent) to help you through the process of applying for an offer in compromise. It’s not for the faint of heart!
- Tax Lien placed on assets. If you have outstanding tax debts, and they’ve been out there for a while, it’s quite possible that liens have been filed and placed against all the assets you own and will own in the future. Liens can be nasty and prevent you from moving forward with your dreams. All is not lost though. If you owe $25,000 or less (or can work to get your balance down to $25,000), you can request to be set up on an installment agreement (payment plan) and have the IRS draft the monthly payment out of your account. After 3 drafts you can request a lien withdrawal. Once the withdrawal is granted the lien(s) fall off (even though the tax debt is still outstanding!). The lien(s) disappear and it’s as though they never existed. Pretty cool stuff. Wait! There’s a bonus—you can expect to see your credit score increase 50 – 150 points once those nasty liens fall off.
- Levy placed on bank accounts or wages garnished. This is one of the biggest ways that the IRS gets the immediate attention of taxpayers who have outstanding tax debts. There’s nothing like checking your account to see that you literally have $5 in there because the IRS has taken hundreds or thousands. There’s an easy way to put a stop to this. Simply set up an installment agreement. No more levies, no more garnishments – as long as you make your payments (hint: set up a direct debit installment agreement where the payments will automatically be taken out every month).
- Unfiled tax returns. So you have a few years worth of unfiled returns and have no idea of what tax forms you received. You can easily request wage and income transcripts from the IRS which will show you all of the w-2’s, 1099’s, etc that you have received (I advise you to engage an Enrolled Agent to do the requesting and digging for you). Then, get busy on filing those returns. What if you have several plus years of unfiled returns? Don’t fret. E-file at least the last 6 years worth of unfiled returns – better yet, have your tax professional (Enrolled Agent or CPA) do it for you – they can help with making sure you take all the credit and deductions you were entitled to take for those years.
- Penalties assessed for late filing and/or late payment. If you failed to file your tax return by the filing deadline, or you did not pay the tax owed in full by the filing due date, you can expect to see some penalties and interest tacked on to the tax balance. But as I said earlier, there’s ALWAYS a solution! Simply call the IRS and request a First Time Penalty Abatement. You may be eligible to have the penalties and interest associated with one tax year abated (waived). There are some requirements, such as being in compliance with all filing requirements (you MUST have filed all required tax returns), no penalties in the 3 years prior to the year being considered for abatement, and you have agreed to pay your balance in full or set up an installment agreement/payment plan. There are other ways to qualify for penalty abatement, but this is by far the easiest.
- Tax audit. A little shiver just went up your spine when you read those words didn’t it? There are different types of audits: A correspondence audit involves the IRS sending you a letter asking for additional information. An office audit requests that you bring certain documents to a local IRS office. A field office involves an agent visiting your place of business or residence to conduct an audit on site. And finally, Taxpayer Compliance Measurement Program which goes through every single line on the tax return. Regardless of the type of audit, my best advice is to engage a tax professional, an Enrolled Agent, CPA or Tax Attorney. I promise you, this will be money well spent!
If you need help with any of the tax problems listed above (or something that’s not listed), call Hayes Financial & Tax Services, LLC at 704-298-1040. During our confidential and free initial consultation, we will listen to your problem and determine how we can help. Our priority is to help you take your life back from the IRS!