Question: It seems everyone’s been talking about the bad economy, but I have to admit, I’ve done pretty well. Too well. My business income is double what it was the previous year, and it probably wasn’t wise of me, tax-wise, to cash in stocks that earned me about $150,000 in profit. Much of that money was used to pay off previous debt, and now I’m stuck with a $98,000 tax bill that I don’t think I can pay. Can you help?
Answer: Many Americans find themselves in the positions you are in right now – owing more taxes than they can afford to pay. Generally, it’s a result of a number of factors: bad accounting, having to pay down large debts unrelated to your tax debt, etc. However, rest assured you have a few options.
The first thing you should do is consult with a qualified tax professional. It’s important to make sure that $98,000 is exactly what you owe to the federal government. Why pay more than you need to, right? A qualified tax professional will analyze your books and tax returns with a fine-tooth comb, making sure you aren’t paying more than a penny more than what you should. Oftentimes, this process can save taxpayers thousands of dollars.
Once your exact tax debt has been determined, your qualified tax professional can help you work with the IRS. One option is to make an Offer in Compromise, which may be the best solution for you. In an Offer in Compromise, a taxpayer who cannot settle his debt offers a lower amount – sometimes pennies on the dollar – in exchange for guarantees of payment. Since the IRS knows it’s hard to track Americans down and make them pay taxes, agents often are receptive to an Offer in Compromise.
However, if you can afford to pay your tax debt but you just can’t cut a check tomorrow, an installment plan may be your best option. Just as you pay for your car in small monthly installment, you can also pay your taxes this way.