A reader wants to know how to pay off tax debt without getting in (more) trouble.

3 minute read

Question: OK, I screwed up and I know it. But I don’t know what to do now. I got laid off and then divorced last year, and I didn’t pay my income taxes. Any of them. Maybe the IRS hasn’t caught up with me because I was self-employed and my wife made most of the money. Now that I’m back on my feet and met someone else, I want to square this up with the IRS. I got no idea how, though.

Then I even went to the IRS website and typed, “I haven’t paid my taxes” into the searchbar. I got stuff that looks like this, about “Economic Stimulus Payments” and “Offer in Compromise.” All I really want to know is: How screwed am I?

— Andy in New York

Howard Dvorkin CPA answers…

Tis the season. Tax season. If last month was the Most Wonderful Time of the Year, we’re quickly approaching the worst. From now until April 15, I expect to receive many more urgent emails from confused but honest Americans like you, Andy.

Giving tax advice is a lot like giving legal advice: It shouldn’t be done without a direct consultation. However, I can give you some pointers that will guide you. Let’s break it down in plain English.

Step 1: Know the law and the reality

Technically, not paying your past taxes is a crime. It’s a misdemeanor, and you could be fined up to $25,000 for each year you don’t pay. Jail time is a possibility — up to a year.

Did I get your attention? Good, now take a long, deep breath.

“The IRS is much more interested in having you pay your taxes than sending you to prison,” Lawyers.com says. “As a result, the IRS rarely prosecutes anyone who comes forward voluntarily to remedy the problem.”

Obviously, you don’t want to wait until the IRS finds you.

Step 2: Know what the IRS does next

Once the IRS figures out you haven’t paid your taxes — and eventually, that happens — it will begin what’s known as the collections process. (You can learn more in our report, Understanding the IRS collection process.)

It starts with a letter. You’ll get a notice in the mail. Read them carefully, because it will spell out how much you owe and give you a deadline to pay it — and the IRS wants all of it at once. (You can avoid that by reading on.)

Don’t ignore this notice, because you’ll just get more. If you keep ignoring them, they’ll stop. Then something much worse happens: You can get hit with a federal tax lien. As we explain in our report, that lien is “the IRS’ claim to everything that you own and anything that you may own in the future while the lien is still in place.”

Then there are wage garnishments and bank levies. You really don’t want to go there. You can avoid all of this by moving onto Step 3.

Do you owe a lot to the IRS and fear you won’t get caught up? Take a look at our solutions.

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Step 3: Getting help

Debt.com often offers two ways to solve your debt problems: do-it-yourself or professional help. For instance, when it comes to credit repair, we spell out both ways and let you choose. But when it comes to taxes, I don’t recommend you go it alone, unless you’re a tax attorney.

For instance, a professional tax consultant can help you with an installment agreement, which is a contract between you and the IRS to pay on monthly installments. That offer in compromise you mentioned earlier, Andy, allows you to settle your tax debt for less than you owe.

The rules are hard to navigate on your own, so I urge you to read our Tax Debt section. Then fill out the form at the top right of this page or call 1-888-470-4531 for a free consultation. You can ask questions without being pressured to buy anything, and you can get answers in plain English. Good luck, Andy.

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About the Author

Howard Dvorkin, CPA

Howard Dvorkin, CPA

I’m a certified public accountant who has authored two books on getting out of debt, Credit Hell and Power Up, and I am one of the personal finance experts for Debt.com. I have focused my professional endeavors in the consumer finance, technology, media and real estate industries creating not only Debt.com, but also Financial Apps and Start Fresh Today, among others. My personal finance advice has been included in countless articles, and has appeared in the New York Times, the Washington Post, Forbes and Entrepreneur as well as virtually every national and local newspaper in the country. Everyone should have a reason for living that’s bigger than themselves, and besides my family, mine is this: Teaching Americans how to live happily within their means. To me, money is not the root of all evil. Poor money management is. Money cannot buy happiness, but going into debt always buys misery. That’s why I launched Debt.com. I’m glad you’re here.

Published by Debt.com, LLC