Taxes

There are various programs that one can utilize to settle tax debt. These programs are especially made by the Internal Service Revenue to help individuals settle tax debt in a more manageable and convenient manner. It is also beneficial for the IRS because they will be able to collect the tax debt fully or partially than to collect nothing at all.

However, finding the best method on how to settle tax debt is not that easy. Usually these programs are not discussed in detail by the IRS. Financial situations may also vary from one person to another making it difficult to single out the best method about settling tax debt. A particular method may work for one person but not for the other. Choosing the right method to settle tax debt is crucial not only to free one from debts but also to rehabilitate one’s credits. Here are several ways that you can choose on how to settle tax debt.

If you wish to pay it in full amount and has the means for it, but don’t have cash on hand, you may go for refinancing and loans. You can also opt for a payment extension to buy you more time to come up with the full amount needed for the tax debt. The IRS would allow you a 45 day extension to settle your debt.

If you want to pay your debt in installment basis, you can set up a partial payment installment agreement or a regular installment payment. This allows you to pay the IRS in smaller monthly payments in a longer period of time. Unfortunately, the interest and penalties do not stop when you enrolled in this agreement. You are still required to pay those until the outstanding debt is paid.

An offer in compromise is another method that you can utilize so that you ca n settle your tax debt in a lower amount than what is actually owed. The IRS only allows this type of agreement if the IRS doubts that it can collect the full amount of your debt. You can also ask for tax rebates to lessen your IRS debt.

Keep Accurate Records

When you file your return, assume that you will be audited. Keep receipts of absolutely everything and keep them with your return. If you can’t produce proof of something you claimed and you’re audited, the deduction will be disallowed and you’ll be penalized for it. While the chances of you being audited are low, you need to retrieve the receipt now while it’s still fresh in your mind. If you get audited in four years, it’ll be hard to track it down.

Read the Notice

Read the notice carefully and respond as quickly as you can, though you generally have thirty days. Being proactive and helpful can turn the auditor into your ally. The audit will tell you what items on your return are being reviewed, prepare a copy of that documentation and bring it to the meeting (don’t give them originals, they might lose them and originals aren’t necessary). Bring only what they ask for! If they ask about certain charitable deductions, bring documentation of those deductions and nothing else. You don’t want them digging around and asking other questions. That’s not because you have anything to hide but because more questions mean more time and this is time consuming enough.

Also, you might have only received a CP2000 clarification letter, which is commonly known as a correspondence audit, which is the simplest type of audit. They call it a mail-order audit because a face to face meeting isn’t necessary, you only need to send in the documents they request.

Treat It Like A Trial

You should be cordial with the auditor but don’t treat them like your friend. At the end of the day their job is to find tax cheats and they’ve identified you as a potential cheater. It’s important that you review this IRS document that outlines your rights as a taxpayer under examinations and ensure that your rights aren’t violated.

The document also outlines the auditing process, or examination process, including a reference to Publication 556, which as details on appeals. If they disallow a deduction that you feel is rightfully yours, pursue it. Don’t let the IRS intimidate you, flex your muscles and arm yourself with the knowledge you need to prevail.

Consider a Tax Professional

If you have a particularly difficult situation that isn’t solved by offering up a forgotten 1099 or some other form, you may want to hire a tax professional who has experience dealing with audits. Audits can be very time consuming so you’ll have to select the tax professional very carefully but their expertise in dealing with numerous audits should aid you in getting as favorable an outcome as possible. It also helps that they aren’t emotionally invested in the process so they can make smart decisions.

In the end, getting audited sucks even if you don’t end up paying an additional cent in taxes. They are time consuming, stressful, and prevent you from doing something else (that you enjoy!). If you are well prepared and know how to respond, you can minimize both the cost and the time.

(Photo: wiredwitch)

How to Survive a Tax Audit from personal finance blog Bargaineering.com.