What to Do About Tax Debt

Tax debt is probably the most serious form of debt, because the bottom line is that the government will get the money owed to them, no matter what. You definitely do not want to mess around with tax debt!

Avoid Tax Debt by Hiring a Professional

The best way to deal with tax debt is to avoid it in the first place, and the starting point for this is to work with a tax professional rather than doing taxes on your own. While it may seem like a good idea to save a few bucks by preparing your own taxes, a good tax professional is worth his weight in gold because not only can he help you avoid getting into tax debt, he can most likely also help you to owe less taxes at the very least, and may even be able to get you a larger refund than you could obtain through your own efforts.

Avoid Tax Debt by Keeping Meticulous Records

Much tax debt comes about as a result of sloppy record keeping and not keeping track of receipts and other items that help you back up the figures you put on your tax return. If you are ever audited, you can be sure that you'll want to have records of every little thing and the only way to accomplish that is to be well organized.

Organization can be done various ways, but at the very least you'll want to have a safe place to store all tax related paperwork such as receipts. In addition to hard copies, you may want to scan and electronically file all important paper work.

Since I purchase many items for my business online, I have a folder set up in my email to keep all electronic receipts for the year so that they are all in one place and can easily be printed when needed at tax time.

What to Do If You Find Yourself in Tax Debt

If in spite of your best intentions you find yourself in tax debt, you need to take immediate action. Unfortunately, tax debt will not go away on its own, and it is one of the most important debts you can pay, so don't procrastinate or deny its existence.

The first thing you need to do if you find yourself in tax debt is contact your tax professional. He is the best person to walk you through the process of paying off the debt and can give you the best possible advice. He may also find that you don't owe as much as thought and can fight for you if such a fight is warranted. Cooperate fully with the tax professional and as promptly as possible supply all requested paperwork.

It's possible that you may qualify to file an Offer in Compromise (OIC), which requires the use of IRS form 656. If you do qualify, this will reduce the amount you owe on your debt, so it's worth at least exploring the possibility.

If you can't afford to pay the entire debt owed all at once, see if you can work out a payment plan with the IRS. Again, this is something your tax professional can help you with.

Although tax debt is not the end of the world, it is indeed a serious matter and should be attended to as promptly as possible.