September 16, 2020

While it’s common for individuals and businesses to owe money to the IRS, many of them have the means to pay their tax debts when they file every year. However, not everyone can do this, leaving debts owed to the Federal Government outstanding. If you fall into this category, there are some important things that you need to know, including the following:

1) You Still Need to File Your Current Tax Return

Even if you owe the IRS money from a previous year or two, you still need to file your current tax return on time. Not filing can lead to a number of penalties, and it may void any ongoing payment agreements that you have with the IRS. It’s always a good idea to make sure that you send in that return on time, even if that return results in you owing money to the IRS.

2) A Tax Lien May Be Placed on Your Property

Companies that enter into payment plans with the IRS are usually on good footing with them. With that in mind, if you owe more than $50,000 to the IRS and have just entered a payment agreement, they can still place a lien on any of the property that the company owns, such as a building or vehicles. This is just a way for them to ensure that they’ll receive the debts owed to them. Once the debt is paid, you can file to have the lien removed from any of your properties or bank accounts that are being held as collateral.

3) Pay as Much as You Can Upfront

Since the IRS charges interest on any debts owed to them, it’s best to pay as much money as you possibly can up front. This shows them that you are serious about paying the debt, and the amount of interest accrued over time will be much lower. It all comes down to the total amount that you owe, as well as how much liquid cash your company has at the time, so do what you can to pay down that debt. It will save you money over time.

4) The IRS Prefers Direct Debit Payments

There are several different ways to pay the IRS once you enter into a payment agreement. However, the IRS does prefer direct debit payments. These payments come directly out of your bank account on a certain day every month, and go directly to the IRS. Using a direct debit plan makes you much less likely to default on your payment agreement, which makes the IRS happy. Plus, you’ll have a solid record of how much you’ve paid over the course of the plan in case you need to dispute anything. You won’t have that with any other manual payment options, so it’s good to keep meticulous records.

5) Installment Payment Plans Are an Option

If you owe money to the IRS, you can set up a payment plan with them. You can enter into one of these agreements directly on the IRS website, where you’ll choose the amount, number of months, and account that the payment will come out of. You can also have your accountant or other tax representative contact the IRS and set up the plan directly with them. Either way, you’ll have to agree to the terms that they set in place, as well as provide your bank account information for the direct debit each month.

6) You Can Request a Filing Extension

Those who currently owe money to the IRS based on the previous fiscal year and are in good standing with them otherwise can file a request for an extension. This extends the due date of your company’s taxes, pushing back both your filing date and providing you with more time to come up with the money that you’ll owe on that return. An extension will also prevent you from having any money accruing penalties or interest. With that said, you do need to ensure that you file your return by the new due date or request another extension if necessary.

7) Any Refunds Owed to You Won’t Be Paid Until Your Debt is Cleared

If for some reason your company has a tax refund owed to it from the most recent fiscal year, you won’t receive a refund until any previous debts to the IRS are paid in full. If you have entered a payment agreement with them, the amount of your refund will be held until everything is paid up. However, if you aren’t in a payment agreement and are avoiding having to pay that amount due, your refund amount may be applied to that debt, lowering the amount due. Even if you enter into a payment agreement with the IRS after this happens, you may still not receive the refund.

8) The IRS Has Ten Years to Collect Any Funds That You Owe

In general, the IRS has a total of ten years after the tax year that accrued the debt to collect on that money. This is good news for small businesses that may have problems coming up with payment amounts because of financial difficulties and a lower amount of revenue. You can enter into a payment plan with them or work on paying down that debt in lump sum installments, but once the debt is ten years old, the IRS writes it off and you no longer owe that money. At that point, you can file to have any liens removed from your property.

9) Past Returns Need to be Filed to Enter an Agreement

While the IRS is more than happy to set up a payment agreement with any company that needs one, as long as they can meet specific criteria, of course, that business does need to be caught up on their tax return filings. If you missed a year or two in the past and had the IRS put together a return for you, your business must amend and officially submit those returns before you can enter into an payment agreement to get caught up on the debts that you currently owe them. You may need to see a professional accountant or tax specialist in order to get these past returns taken care of if this is the case.

10) You Should Seek the Help of a Tax Professional

Owing money to the IRS can be a bit overwhelming and scary. You may feel as though your business is being looked at through a microscope. Liens can be placed on your property and your bank accounts. Even dealing with them to get caught up on past returns or setting up a payment agreement can be a bit daunting. For all of these reasons and more, it’s best to seek the guidance of a tax professional when you owe money to the IRS. Someone who has experience working with them can set everything in motion for you and act as a middleman to ensure that everything is taken care of properly. This makes it easier on you and on the IRS and protects your financial future.

If you have tax-related questions or owe money to the IRS, the tax advisors at the Enterprise Consultants Group can answer your questions, discuss your rights, and provide actionable options. Please contact us online or at (800) 575-9284 today to schedule a free and confidential consultation to see how we can help you.


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