For those of you who do not know, I recently became a contributing author to WomenEntrepreneur.com. My first article on how to know if you owe the IRS was published on Friday, and you can check out some of the article below, with the remainder here.
Entrepreneurs have a lot in common: drive, ambition, creativity and--many times--tax debt. Tax laws are complicated for everyone, and doubly so for enterprising business owners. There are countless ways to get in trouble. But don't panic--there are also several ways to get out of trouble and resolve your tax debt.
The longer you wait to resolve a debt, the more interest and penalties the IRS will tack on. So even if you don't have the money to fully pay your tax bill, you need to take action. Call the IRS and find out the full extent of the debt. Don't be afraid to check the math and question the totals. Simple mistakes on a tax return can result in big tax bills.
Once you've verified that your tax debt is legitimate, and you agree on the amount owed, it's time to consider your options. The option you select depends on your financial situation.
1. Fully pay. This may seem obvious, but the easiest way to resolve an IRS debt is simply to pay it in full. Consider selling a rarely used car or recreational vehicle in order to satisfy the IRS. While this is inconvenient and unpleasant, consider the alternative: IRS collections hounding you day and night, putting liens and levies on everything you own. Doing without a luxury item sounds a lot more appealing, don't you think?
2. Offer in compromise. If you can't pay off your entire tax debt, you might qualify for an offer in compromise (resolving the entire debt for less than is owed). Why would the IRS accept less than what is owed? Well, think of it the way a business owner might: Collection activities cost money. If you can get a lump-sum payment for as much as you can ever hope to collect, even if it's less than the total, there is a benefit in cutting your losses. While this is an excellent way to resolve a tax debt without destroying your finances, it is very difficult to qualify.