Regrettably, recent developments at the IRS bring less-than-welcome news for business owners: the tax authority is intensifying its efforts in audits and collections, with a keen focus on those who own businesses. If you’ve been receiving IRS notices about tax debt and hoping they would somehow vanish, it’s time to face the reality that action must be taken to address these issues. Otherwise, the consequences could lead to unwelcome complications and added stress, affecting both your business and personal life. The IRS wields considerable power, including the ability to seize your assets. In this guide, we’ll explore steps you can take to navigate IRS tax debt effectively and emerge with your financial health intact.
Know Where You Stand
It’s crucial to meticulously review all correspondence from the IRS and thoroughly examine your tax returns for potential errors or discrepancies. The reason behind this diligence is twofold. Firstly, the IRS occasionally makes mistakes, and errors in their calculations or assessments can lead to an inaccurate tax debt amount. By carefully scrutinizing the IRS’s notifications and your filed tax returns, you may identify such errors and have the opportunity to rectify them.
Secondly, seeking assistance from a qualified tax professional can immensely benefit this process. Tax professionals possess a deep understanding of tax regulations, audit procedures, and the intricacies of the IRS. Their expertise enables them to navigate the complex tax system and advocate on your behalf to resolve any inaccuracies or discrepancies. The potential savings you can achieve by correcting errors are often far more advantageous than paying additional fees or interest on an inflated tax debt. In essence, consulting a tax professional provides peace of mind. It ensures you pay what you genuinely owe to the IRS, minimizing the financial burden and mitigating potential long-term consequences of tax debt.
Negotiate the Penalties
Penalties can spiral out of hand very quickly. For this reason, you must act very swiftly when dealing with IRS debt. You may also consider negotiating with the agency to lower, and sometimes even eliminate, any penalties if you provide a reasonable cause. Examples of this may include serious illnesses, difficult financial circumstances, and the destruction of your home or the business you are running. Furthermore, the IRS also has a program that offers relief to those facing the consequences of the agency for the first time.
Establish a Payment Plan for Business Debt
You can quickly create a working plan after you become aware of what you owe. One of the most common approaches is to set up an installment agreement. This arrangement can be as long as six years, and all payments should be made monthly while interest or penalties continue to accrue. Remember, this kind of agreement stops actions such as liens and levies. This process is viable if you are indebted $50,000 or less. It can also be done online; however, you must comply with the IRS, ensuring that you make the proper tax filings, deposits, and withholdings.
Reduce Business Expenses
Take care to consider your operating costs carefully. Figure out the expenses you might cut out versus the services required for the daily operation of your business. For instance, must you pay for a subscription that you use infrequently? Can you temporarily suspend some professional memberships until you get your finances back? Consult a professional accountant or utilize accounting software to predict the financial impact of cutting ancillary expenditures.
Exploring Other Options
You most likely have seen TV advertisements where a representative claims you can settle your IRS debt with “Pennies on the dollar!” Does this sound too good to be true? Unfortunately, this is most often the case. However, the IRS does have a program called “Offer in Compromise,” or the OIC. It allows you to pay off business debt at a discount. This process also involves releasing financial information with the forms 656 and 433. It will determine the amount the IRS considers livable without causing financial restraints on the users. Keep in mind that the IRS rejects numerous submissions. Therefore, consulting with a tax professional with complete knowledge of filling out paperwork and navigating the IRS bureaucracy is beneficial.
Conclusion
In conclusion, proactive and informed steps are crucial to managing the situation effectively when facing IRS tax debt as a business owner. Ignoring IRS notices or allowing penalties to accumulate can lead to significant financial and personal challenges. By knowing where you stand, negotiating penalties, establishing a payment plan, reducing business expenses, and exploring options like the Offer in Compromise program, you can navigate the complexities of IRS debt while preserving your financial health. Consulting a tax professional with expertise in IRS procedures and paperwork can be invaluable, ensuring a smoother journey toward resolving your tax debt and maintaining financial stability.
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