What do you get when you put the words “THE” and “IRS” together. THEIRS. They will get THEIRS one way or another, but you do have a say in the matter, even when you owe them. Here is a primer.

Whatever you do, file your return on time.

Even if you can’t pay what you owe. The failure-to-file penalty is the most onerous of all: 5% of the tax due for any month, or fraction of a month it is late, up to 25%.

Make a partial payment.

Even if you can’t pay the whole tax bill, pay as much as you can. As long as you owe, the interest and penalties keep adding up. But, it also depends on the length of time, amount and where the money is coming from. Consider IRS does not report what you owe to credit bureaus as long as no liens are filed.

Request a payment extension.

If you haven’t applied for a payment extension before, this could be another option. After you file your tax forms without payment, the IRS will contact you to ask whether you would be able to pay within 120 days. If you choose this option, the agency will charge you a monthly fee of 0.5 percent of the amount owed.

Consider an installment plan.

This is a good option if you need more than 120 days to pay your tax bill and you owe less than $50,000. When you file your tax return, fill out an online payment agreement or Form 9465. The IRS will then set up a payment plan, which can last up to six years. You’ll incur a setup fee, which ranges from about $31 to $225 depending on how much you owe.

Ask for leniency due to hardship.

You’ll need to prove that paying your tax debt would cause you a tremendous burden, perhaps forcing you to sell your home. But this could get you more time to make your payment, and in some cases, the IRS will also waive any payment penalties. If the delays are for illness, or other relevant reasonable causes, and not due to neglect on your part, you may be able to have the penalties removed from your record. However, they usually require that you pay them first and then request abatement.

Apply for an “Offer in Compromise.”

This is a way to reduce your tax debt permanently. The IRS says that an offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability or if doing so creates a financial hardship. Before applying for an offer in compromise, the IRS requires applicants to have filed all their tax returns. So, if you didn’t file in previous years, you will need to finish those missing returns. It also requires that you pay the current year’s estimated tax payments.

The post Tax Series Part 3: What to do if you owe money to the IRS appeared first on The Accountancy.

When my kids were younger, we wanted to modernize their bathroom without a complete remodel. The first priority was to swap out old faucets made of the kind of plastic that turns yellow. When my wife and I agreed, we then disagreed (married readers will understand). She expected me to call a plumber and I was expecting to do it myself. How difficult could it be? Initially, I prevailed and was committed to proving her wrong. We went to Home Depot and picked out the replacement faucets. I went back home and, armed with my tool chest, proceeded to scope out the project. It should be noted that I seldom used my own tools, and trepidations aside, it was too late to turn back. “I got this!” was my valiant refrain, that is, if I could find a wrench that would fit underneath the sink. After 30 minutes of futility and frustration, I tried disconnecting the faucets from the top, only to see, to my horror, the plastic break and water start gushing everywhere. Only then did I suffer the indignity of asking my wife to shut off the water main, after which I called a plumber. I was happy to pay to get it done right.

1. You all know I am a CPA, but I assure you this cautionary tale is not meant to be self-serving. It is simply intended to share the conclusions I came to:
2. What seems simple on the surface could have underneath several layers of complexity that are not visible to the untrained eye. You don’t know what you don’t know. Literally.
3. You should not approach a task unless you are prepared and confident, and have the right tools to do it properly.
   Don’t do your own plumbing, or hair, car repair, construction, and especially not your taxes!

The benefits, both tangible and intangible, to using a CPA more than outweigh their cost. It is important to distinguish between the mechanical process of filling out a tax return versus working with an objective advisor who can be part of the team and collaborate with your financial planner, attorney, insurance and mortgage professionals, and bankers, and integrate their advice to your financial strategies. The more financial complexity you have, the more important it is for you to do this.

Since this is Part I of a series, here is the outline of the next parts coming up:

Part 2 – Demystifying the Tax Benefits of IRA’s and ROTH IRA’s

Part 3 – What to do if You Owe Money to the IRS

The post Tax Series Part 1: Why You Should NOT Do Your Own Taxes! appeared first on The Accountancy.