Dealing with the IRS can be intimidating and a real pain. However, avoiding the common mistakes can reduce your financial risks and heartburn. Here are some pitfalls to watch out for and tips on handling them effectively.
1. Ignoring IRS Notices
This is by far the biggest mistake you can make. Nobody likes to be ignored. This is particularly true of large government organizations that feel they are what keeps the Country going. IRS notices are not going to disappear if left unattended. Ignoring them can lead to more severe consequences, such as additional penalties, interest, or even enforcement actions like wage garnishments or bank levies. Dealing with the problem by reading and responding to IRS communications is always the best way.
2. Procrastinating on Filing and Payments
Delaying your tax filings and payments can lead to unnecessary penalties and interest. Even if you cannot pay your tax bill in full, filing your return on time is crucial to avoid the late filing penalty. The IRS has made it easy to set up payment plans. Use this option.
3. Misunderstanding Payment Options
If you owe more than you can pay, it’s important to understand your options rather than avoiding payment altogether. The IRS offers several solutions, including Installment Agreements and Offers in Compromise (OIC). Installment Agreements allow you to pay your debt over time, while an OIC lets you settle for less than the full amount owed if you meet specific criteria.
4. Not Addressing the Core Issue – Business Profitability
Low profitability is almost always why business owners fall behind in tax payments. Most of us tend to treat losses or break-even situations as a hopefully temporary thing. In the long run, the safer approach is treating it as if it were an existential risk to the business. Immediately focus on improving your business’s profitability by revising prices and cutting unnecessary expenses. If you can’t fix this problem, consider closing the business before the buildup of tax debt makes your future miserable.
Conclusion
Dealing with the IRS doesn’t have to be daunting if you avoid these common mistakes and take proactive steps. Responding promptly to notices, filing timely, understanding your payment options, and addressing your profitability issues timely will reduce your IRS interactions to nothing more than an irritation.
