4 Ways To Handle a Surprise Tax Bill
Some surprises are more fun than others. For instance, odds are you’d rather walk into your darkened home to find your friends and family waiting to flick on the lights and start singing “Happy Birthday” than find that a bear has broken in and is making a smorgasbord of your fridge.
One of the least fun surprises you can get — other than finding that wildlife has taken residence on your sofa — is a sudden tax bill. You open the envelope and see a notice about owing back taxes for income taxes or property taxes, and terror floods your heart. What do you do?
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Fortunately, GOBankingRates talked to some experts about how to handle a sudden tax bill.
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Whatever You Do, Don’t Ignore It
While the sight of all those zeros on a bill can make you want to stick your head in the sand, you’d be wise not to follow the model of the ostrich. According to David P. Fritch, CPA, PC, owner of Fritch Law Office, the very worst thing you can do is ignore the bill. Running and hiding only increases the penalties you might face, as well as the likelihood of aggressive collection action, like wage garnishment or property liens.
Instead of running and hiding, you should run right to a tax advisor or other professional.
“With the right negotiation and resolution, we can settle the debt on reasonable terms, even if the amount seems impossible now,” Fritch said. “The key is to remain calm and take action.”
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Have an Expert Review the Bill
When working with clients who have called him after receiving a sudden bill, Fritch said one of the first things he does is review their tax returns to verify how much they owe and see whether it can be reduced. He searches for overlooked deductions and incorrectly reported income that can be amended.
Getting an expert opinion can be especially helpful when it comes to dealing with property tax bills. Fritch said that property tax bills often stem from reassessments, which are not always fair.
“I have successfully appealed property tax assessments that were over market value, saving clients thousands,” he added. “The appeals process does take time, however, so if cash is needed now, a payment plan can buy time to appeal.”
Contact the Agency for Assistance
Going back to the agency that sent you the bill in the first place might seem odd, but it’s actually one of the best things you can do to help yourself. Often, these agencies are willing and able to offer some assistance.
Josh Katz, CPA, founder of Universal Tax Professionals, suggested that you contact the taxing authority immediately, whether it’s the IRS for income taxes or local government for property taxes.
“Reaching out to them can demonstrate your willingness to address the issue and help you avoid additional penalties or interest,” he said. “Explain your situation and inquire about the options available to you.”
Explore Repayment Options
You might be surprised to find that most taxing authorities offer installment payments that will help you pay your debt over time, instead of forcing you to pay a lump sum. Katz said that the IRS has several options for payment plans, depending on how much you owe and your financial situation. Many local governments may also offer payment plans for property taxes that help you break down a lump sum into more manageable monthly payments.
“If your tax bill is from the IRS, explore the possibility of an offer in compromise (OIC). An OIC allows you to settle your tax debt for less than the full amount owed if you meet certain criteria,” he said. “This option is typically available to taxpayers who can prove they cannot pay the full tax liability without facing significant financial hardship.”
People who owe property taxes might similarly consider applying for tax relief programs. Katz added that many local governments also offer relief or exemption programs for seniors, veterans and low-income homeowners.
“These programs can reduce the tax amount owed or provide more time to pay,” he said.
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This article originally appeared on GOBankingRates.com: 4 Ways To Handle a Surprise Tax Bill