If you owe back taxes to the IRS, it’s important to start settling your bill promptly.
“You should handle it,” says Mark Jaeger, director of tax development at tax software company TaxAct. “The reason is: If you don’t, you’ll keep collecting interest and penalties.”
So how do you know if you owe the IRS? For taxpayers looking to learn whether there’s an outstanding tax bill, there are several resources available. Here’s what to know about determining whether you owe money to the IRS — and paying off your tax bill.
How Do I Know if I Owe the IRS?
There are several ways to discover whether you owe back taxes to the IRS, including these:
— You receive a notice from the IRS via mail. Uncle Sam will let you know if you owe back taxes with a mailed notice. To avoid scammers, remember that the IRS will never email, text, contact you initially via phone or reach out via social media.
— Viewing your tax account on IRS.gov. Your online tax account will allow you to see the amount you owe, set up an online payment agreement and review the last 18 months of payment history.
— Filing or reviewing tax returns. Determining back taxes may be as simple as filing or amending a previous year’s tax return.
— Contacting the IRS at 1-800-829-1040. You may choose to call the IRS to get more information on your outstanding tax bill. Note that the IRS is often overwhelmed, and it could be difficult to connect with a real person.
You may want to use several of these methods to confirm an overdue tax bill. Say, for example, you receive a letter from the IRS specifying that you owe back taxes. It could help to verify the authenticity and accuracy by checking against your online account and reviewing previous years’ tax returns.
Keep in mind, too, that ignoring a notice from the IRS will not make it go away. “My recommendation is to always open up those envelopes,” says Mitchell Freedman, certified public accountant and personal financial specialist based in Westlake Village, California. Don’t put it in a drawer and hope it disappears. “It never goes away,” he says.
[See: 15 Tax Questions — Answered.]
How Long Can You Owe the IRS?
In general, the IRS has a statute of limitations of three years from your filing date (including extensions) to assess back taxes and 10 years from notifying you to wrap up any debt collections activities.
But it’s important to note that these statutes of limitations can be extended for myriad reasons, so trying to wait them out may backfire. If you neglect to repay your bill, the IRS may take these actions against you:
— File a tax lien, which is a legal claim to your property.
— Seize assets such as wages, bank accounts, Social Security benefits and retirement income.
— Seize property such as real estate or vehicles.
— Garnish future tax refunds.
As you dodge your tax bill, penalties and interest will continue to accrue, your credit score may tank and you could wind up in a legal battle. If things get particularly testy, Freedman recommends working through an intermediary such as a tax attorney to prevent panic and assert your rights as a taxpayer.
[Read: What’s My Tax Bracket?]
Ways to Pay Off Your Tax Bill
Once you’ve determined that you owe the IRS money, it’s time to repay those back taxes. Ideally, you’d be able to repay any outstanding tax bill, plus fees and interest, immediately, Jaeger says. But if you can’t pay your taxes all at once, there are several relief programs to consider.
— Get on an installment plan. You can apply to repay your tax bill in monthly payments. While you do, interest will continue to accrue.
— Request an offer in compromise. This allows you to settle your tax debt for less than the full amount owed. Filing an application is part of the process.
— File and pay what you can. The failure-to-file penalty is higher than the failure-to-pay penalty, so it makes sense to file your taxes and pay whatever you can. After this, work with the IRS to get on a payment plan or talk to a tax professional about your options.
If your overdue tax bill is high, don’t stress. Mistakes happen, and if you missed a 1099 or neglected to report other income, work with the IRS to make things right. And if you need additional help, a tax professional may help you navigate the process.
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