4 Tips to Avoid IRS Tax Debt

November 14, 2018

Falling behind on personal income taxes can happen to anyone, but it’s not inevitable.  With just a little advance planning, taxpayers can reduce the likelihood of falling behind with the the Internal Revenue Service. Obviously, no one wants to end up with IRS tax debt problems, but some people simply end up facing insurmountable problems and run out of options. While the specifics of why and how a given person runs into tax debt problems, one general reason seems to apply in every situation.  That is, the failure to plan ahead for unforeseen contingencies. If taxpayers used their mental horsepower to adequately plan ahead for the unknown, a lot of tax trouble could be avoided. 

What’s that old saying, an ounce of prevention is worth a pound of cure?  Well, when it comes to IRS tax debt, that old saying couldn’t be more true.  Apart from this general piece of wisdom, though, this blog post is intended to help taxpayers avoid trouble by offering simple tips to avoid debt, including IRS tax debt.   As we know all too well here at Mackay, Caswell & Callahan, having to resolve IRS tax debt is never a pleasant matter.  The tips offered here can help you minimize your overall debt burden thereby contributing toward a brighter financial future. 

Set Funds Aside in Advance 

The first, and perhaps best, advice to avoid IRS tax debt is to set aside funds in advance. Procrastination is one of the most common reasons for falling behind on federal tax obligations. Taxpayers put off thinking about their tax liability.  They assume, somewhat naively, that they’ll somehow have funds available when the due date approaches.  Yet when that due date finally rolls around, they find themselves lacking the funds to cover the tax bill. That also leads to late filing and/or late payment penalties, plus interest.  The result is that delinquent taxpayers quickly find themselves under a mountain of IRS tax debt.  So, no matter what tax payment schedule a taxpayer is on, monthly, quarterly or annually, prudence requires everyone to set aside sufficient cash for their tax liabilities.  

As a general rule, taxpayers should always be at least one payment ahead.  That means that if you’re self-employed and required to make quarterly estimated tax payments, your payments should always be at least one quarter ahead.  That way, no tax liability can ever “sneak up” on you. You’d also be surprised how much more productive you’ll be not fretting about future tax payments. 

Minimize Your Overall Liability 

In order to avoid IRS tax debt, another solid strategy is to employ a tax professional for the purpose of reducing your overall burden. Like the first tip, this piece of advice is something which makes intuitive sense.  If you reduce your overall tax burden, you’ll have a much easier time making the payments to cover that tax burden. Be diligent in your search for a competent accountant or CPA; ask questions.  Make sure that the person you pick has a good grasp of  your particular tax situation. Taking the time and trouble to pick the right CPA is an excellent long term investment.  A highly experienced and well-qualified CPA can save you substantial sums of money and keep you out of tax trouble. 

Keep Accurate Records

The third piece of advice may not be as intuitive as the first two.  Nonetheless, it’s still quite valuable, and that is, be sure to maintain accurate records.  What we mean is preserving all relevant spending records necessary to substantiate the figures on your personal income tax return. If you take a deduction that you can’t substantiate, that can have severely negative consequences if you’re later faced with a tax audit. Unsubstantiated deductions can result in hefty IRS penalties.  One of the worst things a taxpayer can do is improperly minimize a tax liability on a filed return, only to have it increased upon review.  Accuracy-related penalties, fraud penalties and compound interest are all distinct possibilities under that scenario.

Keeping accurate records and receipts will also assist the accountant or CPA you select. Maintaining good records is a common piece of advice.  One you’ll find elsewhere throughout the web, but only because it’s undeniably important. Sometimes things get repeated for the simple reason that they are highly valuable.  That’s definitely the case in this instance. 

Get IRS Tax Debt Help From a New York Tax Attorney

The last tip, and the one we’ll close with, is to know who to go to for good tax help.  Like the other tax tips above, this one speaks to the importance of planning and preparation.  To come full circle, it’s all about that ounce of prevention.  In this case, if you do find yourself in tax trouble, the best course is to not put off dealing with it.  Instead, it’s important to to take steps to address the matter as soon as possible, with the right tax professional. We regularly see small tax debts balloon into large problems due to inaction by taxpayers.  So if you have an IRS tax debt issue, take control of the situation.  Call one of our top New York tax lawyers today. With offices in multiple New York cities including Albany, New York City, Rochester and Syracuse, a New York tax attorney can get started on your case right away. 

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