Taxes

What to do if you Owe the IRS a Lot of Money



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What should you do if you owe the IRS a lot of money? The easy answer is to make sure that you pay that debt off as soon as possible, because you will be deeper in debt the longer you let it slide. The best answer is to make sure you get with the IRS about the issue as soon as possible to make some sort of deal with them to pay off your debt in a way that is the best for you and keeps your tax debt as low as possible.

The easiest thing to do is to plan your tax scenario out in advance. What I mean by this is that you should be going through all your potential income sources and figuring out what you might owe in income taxes. If you have a salaried job this might be easier, but if you have a freelance job it might be harder to figure out what you are going to owe. You also have to worry about the SE tax, or Self-Employment tax if you are a freelancer who makes over 400 dollars in net income a year.

If you know in advance what your tax bracket is going to be, and how much you have to pay, you are going to be ready in case you do end up owing a lot of money. Knowing your tax situation is also going to allow you to be up to date on all the deductions and other write offs you might be able to take to lower your income tax. Going to a tax professional also helps.

A debt to the IRS can be paid in many ways. One solution might be to get a loan, or sell assets that you have in order to make the payment on time. A key tip is to always file on time even if you can't pay. If you don't file on time, the IRS can file a return for you without any of the deductions that you are entitled to. You can use a credit card to pay for your tax debt as well if you have a high credit line that you can use.

Do not think that the IRS is going to let it slide. While getting audited is rare, the IRS might catch you if you don't even file, or pay taxes owed. If they audit you, and you have to pay, they will take it out of your paycheck or place liens on your property. That will kill your credit and have the government taking your money that you might need for other things like food, or housing payments.

The best thing to do is to not owe the IRS a lot of money. Make sure that you are doing the necessary accounting work to keep as much of your money as possible, and take all the deductions you can. If you can't pay, contact the IRS and they will work something out with you. This is much better than hoping the problem goes away.

More about this author: Cody Hodge

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