The 7 Worst Things You Can Do If You Owe the IRS
The 7 Worst Things You Can Do If You Owe the IRS
December 6, 2023 By Jennifer Taylor GoBankingRates
You’re in debt to Uncle Sam. This probably isn’t a great feeling, but you have to face it.
Maybe you have the money to pay your tax bill or perhaps you don’t. If not, you have many options, so don’t take any of the following.
Using a Credit Card To Pay Your Taxes
Charging IRS debt to your credit card might be easy in the short term, but doing so can be a costly choice.
“The IRS interest rate changes quarterly, but it’s hovered around 8% in recent years,” said Brad Paladini, tax attorney and owner of Paladini Law, a tax law firm. “Credit card interest is usually around 22%, meaning that if a taxpayer uses a credit card to pay their taxes, they are paying almost three times as much in interest than if they paid the IRS directly.”
Failing To Stay in Compliance With the IRS
“The IRS is usually very willing to arrange a resolution for past-due tax debt, whether it be an installment agreement, an offer in compromise or hardship status,” Paladini said. “But the IRS requires that the taxpayer remain ‘current’ with the taxes.”
Going forward, he said this means you’ll need to file all returns on time and pay all future taxes on time.
“If the taxpayer fails to do so, she’ll default whatever arrangement was made with the IRS,” he said.
Ignoring the Problem Until It’s Too Late
“Taxpayers will know there’s an outstanding tax debt, but will ‘bury their head in the sand’ and ignore it,” Paladini said. “Eventually, the IRS will wipe out their bank accounts or garnish their wages to recoup their money.”
If it comes to this, he said it will be much harder to try and resolve than if you had proactively reached out to the IRS to settle it.
Not Understanding Your Options
If you owe money to the IRS, Paladini said, you have six payment options, including an installment agreement, offer in compromise, currently non-collectible status, penalty abatement, innocent spouse relief and bankruptcy.
“Each of these options has separate requirements,” he said. “Trying to navigate that path on your own can be extremely difficult.”
If you need help navigating what’s best for your unique situation, he said you should reach out to a tax professional.
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