When facing potential tax issues with the IRS, developing your strategy as early as possible is crucial. Proactive planning can help you avoid the intense pressure from enforced collection actions, such as levies. But how much time is considered strategic timing? At least three months are needed to implement key strategies that can help manipulate the Reasonable Collection Potential (RCP) formula to your advantage. The IRS uses the RCP formula to determine how much they can reasonably expect to collect from you, considering your income, expenses, and assets. Here are some steps to take early on:
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Catching Up on Allowable Expenses
One essential strategy is ensuring you’re up-to-date on payments for allowable expenses like child support and student loans. These payments are considered necessary living expenses by the IRS and can reduce your disposable income, which in turn lowers your Reasonable Collection Potential (RCP). The IRS looks for a history of making these payments before including them in the RCP formula, which is why establishing a consistent payment record for at least three months is crucial.
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Replacing an Old Car
If you’re driving an old, unreliable car, consider replacing it with a new or more reliable vehicle. The IRS allows for a reasonable vehicle expense as part of necessary living costs. By purchasing a new car before engaging with the IRS, you can ensure that this significant expense is factored into your financial analysis. This step not only improves your daily life but also strategically reduces the amount the IRS considers available to pay off your tax debt.
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Signing Up for Life and Disability Insurance
These types of insurance are considered allowable expenses by the IRS and can also reduce your RCP. The IRS will look for at least three months of payments before it includes them in the formula.
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Maintaining Records and Documentation
To effectively present your case to the IRS, it’s essential to maintain thorough records and documentation of all allowable expenses. This includes keeping receipts, payment records, and contracts related to child support, vehicle purchases, and insurance policies. Early preparation of these documents will make it easier to substantiate your claims and negotiate with the IRS.
Conclusion
Getting your strategy down early is crucial for negotiating the best deal possible with IRS Collections. Time is the magic ingredient that makes this happen. By proactively managing your allowable expenses, documenting necessary costs, and making strategic financial decisions at least three months ahead, you position yourself for a more favorable resolution. Don’t wait for the IRS to apply pressure—start your strategy planning today to take control of your tax situation.
