Fixing Tax Debts 101

If you owe the IRS, you have options. There are lots of programs, lots of new arrangements and lots of strategies to address it. And the options range from some provided by the IRS to using a Chapter 7 Bankruptcy filing. But if you want to know the fundamental rule of tax debt reduction (and elimination) there don’t forget these two simple concepts:

  1. Most taxpayers understate their deductions (and overpay in tax); AND
  2. Any tax return can be amended.

Being pursued by the IRS is frightening. They have been given broad powers and there are very few places to go for help if they’re on your tail. And it’s not just taxpayers that live in fear. Most tax preparers suffer from the same malady. As a result, many legitimate deductions just aren’t taken for fear that claiming the deduction will somehow raise the IRS ire. As a result, it’s very common for the tax liability to be over-stated. And don’t rely on the IRS to fix your return. That simply doesn’t happen – the IRS is the collection agency, not your tax accountant. They’re under extreme pressure to maximize revenue. Helping you reduce yours simply isn’t part of their mission statement.

But just claiming the deductions can often make things even worse. The most common ways of reporting deductions are also the most common reasons for an IRS audit. How you report the information is just as critical as what you report. Put verifiable personal expenses on your personal return and use a business return for business expenses. Pay attention to math and clerical errors. Be conservative, but don’t let fear shape your return. And if you’re not absolutely certain what you’re doing, use a professional. Amending tax returns is rarely a do-it-yourself project unless you really know what you’re doing.

When the amended return is done properly and filed, the corrections will take 3-4 months. While this is occurring, keep current on any installment arrangements. And once the amended return is processed, the overall tax AND the penalties AND the interest will all have been adjusted. And in some circumstances, you may even be entitled to a refund.

So if you owe the IRS, don’t overlook the obvious. It may be that the key to resolving the issue is in your tax return itself.

By: Evan A. Nielsen (Licensed in California)

Have more questions? Schedule your free tax consultation today by calling (480) 888-7111 or submitting a web request here.