No one particularly likes paying taxes, but it is a part of living in this country. To say filing taxes is confusing is an understatement. There are different forms, deductions and you need to know the right things to claim. A mistake may show up years later.
Receiving a letter that says you made a mistake on your taxes is nerve-racking. A letter that states your mistake means you owe the IRS a large amount of money is particularly daunting. You may have not realized you owed the money. You also may not have the cash to pay for it. It is also possible the bill is an error. Before you start to panic, here are some options for handling a tax bill from the IRS.
If you receive a bill that is a mistake
It is possible the IRS made a mistake. Collect documentation that supports your version of the events. These documents could include receipts, past tax returns, etc. Then reach out to the IRS. Your bill should include contact information.
When speaking over the phone, take notes after each call. Write down the contact person's name, his or her contact information and any important information. This may prove helpful to refer to later. If you correspond via email, keep all the emails from your communication.
At some point, the IRS will request you send the documentation you gathered. Send copies and keep the originals, unless otherwise directed. If you are having difficulty arguing your case, you may consider reaching out to a tax attorney. An attorney will research your case and help you defend yourself against an erroneous tax bill.
If you cannot afford the tax bill
The sooner you pay your tax bill, the less you will owe to the IRS. The IRS charges monthly late fee penalties and interest on penalties and back taxes, which is compounded daily. All these fees add up to much more additional money.
You could consider taking out a loan to pay off your tax bill. Putting it on a low interest credit card may even be less expensive than paying all the IRS fees.
You may want to reach out to the IRS directly. If your tax bill is $50,000 or less, you could apply for an online payment agreement. There is a set-up fee, and you will have to pay interest. However, this can make your debt much more manageable.
Another option is applying for an Offer in Compromise with the IRS. This allows you to pay less than the full amount of your bill. However, to qualify, you must prove paying the full amount is a financial hardship.
If you just need a little extra time, you can apply for a short-term extension. This will give you another 120 days to pay your bill, and you usually do not have to pay any extra fees for this extension. You can apply online or by phone.
Receiving a large tax bill from the IRS is scary, but you do have options. For a bill that is a mistake, you can defend yourself against the false charges. If you do not have enough cash to pay the bill, you can apply for a short-term extension, a payment plan or an Offer in Compromise from the IRS. You could also apply for a loan from your bank or could put the payment on a low interest credit card.