How to make friendly with the IRS?
August 27, 2010 1:49 PM Subscribe
IRS woes! I've gotten myself into a little bit of a pickle, and I'm not sure how large it is. I made all of my state tax payments for 2009, but only half of my federal. I haven't gotten in contact with the IRS about paying the remainder. Basically I've been scared as hell, and would like some advice on how to proceed.
I took a staff position last november that cut my takehome income by 30k, which hit me really hard come April taxtime. I've been very anxious about what to do, because until this point I literally haven't been able to pay it off..
I know I need to take care of this issue, and soon. My finances are slowly building back up into "able to make payments aside from ramen and rent", and I know taxes aren't really the best financial item to put off until later, but I didn't feel I had much choice.
What is the best way for me to proceed from here? I assume I've incurred some sort of interest, but I don't know the best way to approach the IRS to say "I'm sorry about the past few months, but I'm able to make what payments I can now." I've paid my taxes on time for the previous four years of freelancing, in full, so this is a first penalty for me. I'm in New York if it matters. Here's hoping someone has some kind words of advice, or anecdotes. Thank you all in advance.
I took a staff position last november that cut my takehome income by 30k, which hit me really hard come April taxtime. I've been very anxious about what to do, because until this point I literally haven't been able to pay it off..
I know I need to take care of this issue, and soon. My finances are slowly building back up into "able to make payments aside from ramen and rent", and I know taxes aren't really the best financial item to put off until later, but I didn't feel I had much choice.
What is the best way for me to proceed from here? I assume I've incurred some sort of interest, but I don't know the best way to approach the IRS to say "I'm sorry about the past few months, but I'm able to make what payments I can now." I've paid my taxes on time for the previous four years of freelancing, in full, so this is a first penalty for me. I'm in New York if it matters. Here's hoping someone has some kind words of advice, or anecdotes. Thank you all in advance.
Just call the IRS. The worst thing you can do is delay any further. They will help you work out a payment plan. Yes, there will be interest, and yes there may be penalties.
From the IRS: What if I can't pay my taxes?
posted by jedicus at 1:55 PM on August 27, 2010
From the IRS: What if I can't pay my taxes?
posted by jedicus at 1:55 PM on August 27, 2010
When I forgot to pay my federal taxes for 2005, they eventually caught up with me sometime in mid-2008. It was no big deal; they just put me on a payment schedule of a few hundred bucks a month plus a not-crippling amount of interest. It's better to contact them and sort it out - the fate you're imagining is probably much worse that the reality of the situation, unless you owe like millions of dollars.
Filing late FAQ page at irs.gov.
posted by CheeseLouise at 1:56 PM on August 27, 2010 [1 favorite]
Filing late FAQ page at irs.gov.
posted by CheeseLouise at 1:56 PM on August 27, 2010 [1 favorite]
They really do want to work with people. Just make sure that you can realistically meet whatever payment plan you set up with them, because changing it later is a PITA, and missing payments on an agreed payment plan is a big no-no.
If you want the name of a good, REASONABLE accountant who could look at your schedule C and let you know if you missed anything, MeMail me. She bases her fees off of what you make, and, well, she knows what that number is. She helped me through a similar situation a few years ago.
posted by micawber at 1:58 PM on August 27, 2010
If you want the name of a good, REASONABLE accountant who could look at your schedule C and let you know if you missed anything, MeMail me. She bases her fees off of what you make, and, well, she knows what that number is. She helped me through a similar situation a few years ago.
posted by micawber at 1:58 PM on August 27, 2010
Also chiming in that folks at IRS are super nice and easy going. I had an issue many years ago and I called the customer service and the guy said "Hey no worries man. I'll take care of it".
All I could say was huh, is this really the IRS?
posted by special-k at 2:27 PM on August 27, 2010 [1 favorite]
All I could say was huh, is this really the IRS?
posted by special-k at 2:27 PM on August 27, 2010 [1 favorite]
First of all, don't panic. The IRS can't throw you in prison. But what they can and will do is garnish your wages directly from your employer or place a lien on your bank account. And you do not want it to go down like that. The good news is that if you haven't already received certified letters in the mail to your home address that threaten to garnish your wages or place a lien on your assets, then you're still doing okay on time.
And frankly, if you're talking about Tax Year 2009? They probably don't even know you're late yet. So, exhale. My experience was like CheeseLouise's... it took them years to track me down on a liability I didn't know I had.
The first thing you need is an accurate picture of where you are and what your real situation is. You probably owe much less than you think, but fear has you imagining an ungodly sum. You need to just bite the bullet and call the IRS. The agent isn't going to call you names, or tell you that you are a bad person or demand your first-born. (Remember that the person on the other end of the line is a federal employee who pretty much doesn't care anything about you or why you're late.)
Whoever you speak to will ask you if you plan to pay it off right now over the phone. Tell them, no, you want to set up a payment plan but you need to review the balance due against your ability to pay, and can they please send you a statement regarding your underpaid tax.
If they try to get you to make a payment plan before you receive a statement, be firm and tell them you need to review the full liability with your financial advisors (which can be your mom or your cat, for all they know).
They will mail you a document that shows what you owed and paid for TY 2009, and what interest has been charged to date, and what you still owe. After you receive that, call and set up a payment plan. Here's how that will go:
Tell the agent that you have an overdue balance for tax year 2009, and you want to set up a payment plan. She will ask you how much you can pay per month. Give them a reasonable number that you can make without stressing it or eating dust bunnies. It's better to send in $100 a month that you will never ever be late on, than promise to send them $500 and then have to sell plasma to make the nut.
They're going to ask what monthly date is good for you. Again, make this a date right after a payday so you can pay it without stress.
There is a fee for setting up a payment plan, I think it's $100 or so. You have to pay that in the first month.
They will send you an invoice each month reflecting how much you still owe, including a payment envelope and coupon. Put your check in, drop it in the mail, and repeat monthly.
A couple words of advice: ALWAYS have a pen and paper handy when you call. Anytime you call the IRS, the agent will come on the line with "This is Ms. Crabapple, Agent # 4672381938, how can I help you?" and it's easier to jot that down right then.
And you want to keep good records—keep a log that shows when you called, who you spoke to. That way if you have to call back and refer an earlier conversation, you are armed and prepared.
Be aware: they like to ask things like "We just need to make sure your file is updated..." and then ask for information so they can file a lien on you, if it comes to that. Only answer that which you know they already know. Where you work, home address, home phone, etc. They might ask where you bank or what your work number is, and you don't have to give them that. Yes, this is the government, but you didn't commit a crime; treat them like you would any other creditor, and don't be afraid to assert yourself.
(They do ask for your SSN right at the beginning, which of course you have to provide because duh, that's your tax ID number)
And... consider upping the withholding on your W-2 for the remainder of 2010. Whatever refund that nets you will go straight to your IRS debt in April 2011, which is an easy way to get more cash to them that you never have to deal with.
Good luck! Like everyone has said, this isn't as scary as it seems, and they're actually pretty helpful and nice.
posted by pineapple at 2:29 PM on August 27, 2010 [5 favorites]
And frankly, if you're talking about Tax Year 2009? They probably don't even know you're late yet. So, exhale. My experience was like CheeseLouise's... it took them years to track me down on a liability I didn't know I had.
The first thing you need is an accurate picture of where you are and what your real situation is. You probably owe much less than you think, but fear has you imagining an ungodly sum. You need to just bite the bullet and call the IRS. The agent isn't going to call you names, or tell you that you are a bad person or demand your first-born. (Remember that the person on the other end of the line is a federal employee who pretty much doesn't care anything about you or why you're late.)
Whoever you speak to will ask you if you plan to pay it off right now over the phone. Tell them, no, you want to set up a payment plan but you need to review the balance due against your ability to pay, and can they please send you a statement regarding your underpaid tax.
If they try to get you to make a payment plan before you receive a statement, be firm and tell them you need to review the full liability with your financial advisors (which can be your mom or your cat, for all they know).
They will mail you a document that shows what you owed and paid for TY 2009, and what interest has been charged to date, and what you still owe. After you receive that, call and set up a payment plan. Here's how that will go:
Tell the agent that you have an overdue balance for tax year 2009, and you want to set up a payment plan. She will ask you how much you can pay per month. Give them a reasonable number that you can make without stressing it or eating dust bunnies. It's better to send in $100 a month that you will never ever be late on, than promise to send them $500 and then have to sell plasma to make the nut.
They're going to ask what monthly date is good for you. Again, make this a date right after a payday so you can pay it without stress.
There is a fee for setting up a payment plan, I think it's $100 or so. You have to pay that in the first month.
They will send you an invoice each month reflecting how much you still owe, including a payment envelope and coupon. Put your check in, drop it in the mail, and repeat monthly.
A couple words of advice: ALWAYS have a pen and paper handy when you call. Anytime you call the IRS, the agent will come on the line with "This is Ms. Crabapple, Agent # 4672381938, how can I help you?" and it's easier to jot that down right then.
And you want to keep good records—keep a log that shows when you called, who you spoke to. That way if you have to call back and refer an earlier conversation, you are armed and prepared.
Be aware: they like to ask things like "We just need to make sure your file is updated..." and then ask for information so they can file a lien on you, if it comes to that. Only answer that which you know they already know. Where you work, home address, home phone, etc. They might ask where you bank or what your work number is, and you don't have to give them that. Yes, this is the government, but you didn't commit a crime; treat them like you would any other creditor, and don't be afraid to assert yourself.
(They do ask for your SSN right at the beginning, which of course you have to provide because duh, that's your tax ID number)
And... consider upping the withholding on your W-2 for the remainder of 2010. Whatever refund that nets you will go straight to your IRS debt in April 2011, which is an easy way to get more cash to them that you never have to deal with.
Good luck! Like everyone has said, this isn't as scary as it seems, and they're actually pretty helpful and nice.
posted by pineapple at 2:29 PM on August 27, 2010 [5 favorites]
Just dropping by to nth the sentiment that in general, people who work at the IRS are super nice people. They're happy when people try to make arrangements, even if they are late. There's no need to be afraid, they are extremely reasonable about the size of the payments as well.
Good luck!
posted by Kimberly at 2:50 PM on August 27, 2010
Good luck!
posted by Kimberly at 2:50 PM on August 27, 2010
I just got nabbed -- very gently -- for an accidentaly underpayment in 2007. We got a letter in the mail about it. The agents I spoke to on the phone couldn't have been nicer; we set up a direct debit for $100 a month (we owed about $1,000), and have been getting regular statements since then.
posted by vickyverky at 3:07 PM on August 27, 2010
posted by vickyverky at 3:07 PM on August 27, 2010
You will just pay a small penalty and interest. They really don't care. You will trip out on how nice they are. I just spoke with them last week, for something I was totally in the wrong about. I have to say, it was the most pleasant conversation of my day (and I have plenty of pleasant conversations).
posted by Vaike at 3:14 PM on August 27, 2010
posted by Vaike at 3:14 PM on August 27, 2010
missing payments on an agreed payment plan is a big no-no
I was told this too but I missed a few payments on an installment plan once and when I finally called them, they were like "Oh just start paying again and if it has already defaulted it should automatically reinstate." They really are nicer than you expect — they're really just glad people are trying to pay their taxes.
posted by nicwolff at 3:30 PM on August 27, 2010
I was told this too but I missed a few payments on an installment plan once and when I finally called them, they were like "Oh just start paying again and if it has already defaulted it should automatically reinstate." They really are nicer than you expect — they're really just glad people are trying to pay their taxes.
posted by nicwolff at 3:30 PM on August 27, 2010
Everything pineapple said. I just had to deal with this and the process I encountered matches that description succinctly. It is extraordinarily painless. One small addition to pineapple's advice: Depending on your reported income history (which they have immediate access to you over the phone) you can argue to have the set-up fee lowered.
posted by greenland at 8:49 PM on August 27, 2010
posted by greenland at 8:49 PM on August 27, 2010
little sally tax dodger here. not really, i just didn't file taxes for ... several years. this year i got myself 'people'--a cpa--and got right with the irs.
they're not going to throw you in jail, because then they'd never get their money. they really are helpful & they *want* to work with you.
good luck. you'll sleep better when it's taken care of.
posted by msconduct at 7:07 AM on August 28, 2010
they're not going to throw you in jail, because then they'd never get their money. they really are helpful & they *want* to work with you.
good luck. you'll sleep better when it's taken care of.
posted by msconduct at 7:07 AM on August 28, 2010
This thread is closed to new comments.
In the meantime, are you sure you took every possible business expense deduction? I would go through the Schedule C instructions very carefully and look for every legal opportunity to reduce your profit and thus your tax bill -- you can file a revised return if necessary.
posted by Jacqueline at 1:54 PM on August 27, 2010