Scary Tax Situations and How to Conquer Them
Disclaimer: This material is prepared for informational purposes only and is not tax advice. Please speak with a tax professional or view the resources linked in the article to see how this information may apply to you.
It’s spooky season! As kids, we feared monsters under the bed, but as adults, it’s taxes that can keep us up at night. The thought of navigating complex tax forms, dealing with deadlines, and facing potential penalties can feel overwhelming. Fortunately, most solutions are straightforward if you remain diligent and avoid procrastination.
Most scary tax situations arise from procrastination—whether it’s filing after the deadline or ignoring communications from the IRS. To help you stay prepared, here are some common tax nightmares and what to do if you encounter them:
Receiving a Phone Call from the IRS
Let’s begin with a situation that might appear scary but is often just a scammer disguised as the IRS. The IRS always sends written notices first, so be cautious of any calls if you haven’t received prior correspondence from the IRS. Additionally, they will never demand immediate payment or threaten legal action over the phone.
If you receive an unsolicited call claiming to be from the IRS, never provide personal information. Hang up the phone immediately and notify the IRS about the scam by:
Reporting the call to TIGTA using the IRS Impersonation Scam Reporting form or by calling 800-366-4484.
Reporting the number to phishing@irs.gov with "IRS Phone Scam" in the subject line.
Not Filing on Time
Missed the tax deadline? You may find yourself in one of two situations:
Expecting a Refund? If you're due a refund, there’s no penalty for filing late, but it’s still a good idea to file as soon as possible to claim your refund. If you don’t file within three years of the original tax deadline, you’ll lose your refund.
Owe Taxes? If you owe, filing late will result in penalties and interest on the outstanding amount. File as soon as you can to minimize these extra fees.
If you cannot file your tax return by the typical April 15 deadline because you are waiting on additional documents, you should file an extension that provides an additional 6 months to file your tax return. However, an extension only grants extra time to file—not to pay. Estimate your tax liability and make a payment when filing your extension to avoid penalties and interest.
Receiving a Letter from the IRS
No one likes getting mail from the IRS. Whether the letter is about verifying your identity or owing more taxes, the first step is to read the entire document carefully.
If the notice requires a response or you would like to appeal a decision by the IRS, make sure to do so by the deadline listed on the letter. If you have trouble understanding the letter, consulting with an experienced tax preparer can provide clarity. At Northside Tax Service, we can review your IRS letter and guide you on the next steps and what options you may have.
Owing a Large Amount of Tax
Receiving a large tax bill can make your stomach drop. If you’re unable to pay the full amount at once, the IRS offers payment plans that allow qualified taxpayers to pay the balance over time.
Additionally, it’s also crucial to understand why you owe so much:
For Employees: Review your W-4 form to make sure enough tax is being withheld. You can use the IRS Tax Withholding Estimator to determine if you need to change your withholding.
For Self-Employed Individuals: Making quarterly estimated tax payments can help you manage your tax burden throughout the year. These payments can be spread evenly or adjusted based on seasonal income.
Undergoing an IRS Audit
The word “audit” might send shivers down your spine, but keeping good records can ease some of the stress. An IRS audit involves a review of your tax return to verify the accuracy of your reported income and deductions. Being selected for an audit doesn’t always indicate an issue, since taxpayers can be chosen through random selection or computer screening.
If you are selected for an audit, the IRS will notify you by mail. It’s important to respond promptly and provide the necessary receipts and documentation to support any claims under review, either through the mail or during an in-person interview.
Having a Lien, Levy, or a Garnishment on your Wages
The most frightening scenario is ignoring the IRS entirely. If you fail to pay your taxes or communicate with the IRS, they may place a lien or levy on your property or issue a court order for wage garnishment. They will only take these measures after multiple collection attempts have been made and ignored. To avoid this, it’s crucial to respond to any IRS notice right away and set up a payment plan if necessary.
In Case of Doubt, Contact a Tax Professional
We don’t want to spook you, but understanding how to handle these tax situations is key. Never ignore IRS communications—it will only make things worse. Address issues head-on, and if you need help, don’t hesitate to give us a call at (360) 922-0235. At Northside Tax Service, we’re here to help you tackle these frightening scenarios by giving you a clear understanding of your taxes so you can approach them with confidence.
