Tiffany owed business taxes to the IRS, had a tax lien imposed on her, and set up an installment agreement to pay off her taxes.
What I Learned From Owing Taxes to the IRS
person found Tiffany's experience helpful.
I had a few great years with a business I built from the ground up. While my business starting skills worked well, my budgeting and tax paying skills were not anywhere near up to par. The combination of self-employment taxes and an ex-boyfriend whose spending habits took us into the red every month led to a few years of unfiled, unpaid taxes. It turns out that the Internal Revenue Service isn't the biggest fan of business owners not keeping up on their individual tax returns.
In the three year time span where I wasn't able to pay my income taxes, business dropped off. The IRS filed substitute returns for me, and the amount that they asked for far exceeded my ability to pay. Instead of working with them directly, I stuck my head in the sand and hoped it would all go away. It didn't take long for the first collection notice to show up. It let me know the amount I owed the IRS and the steps they would take to attempt to collect if I didn't respond. I had no way of paying that much in a lump sum as I had a five figure tax bill, so I continued ignoring notice after notice.
Eventually, I received a Notice of Intent to Levy. This notice let me know that the IRS was getting ready to levy refunds, my bank accounts, and other assets. It also informed me of the possibility that a tax lien may be placed on my credit report. I finally got my head out of the sand and started talking to the IRS to resolve the issue after dodging them for the better part of two years.
Due to the amount owed, and my inability to pay it all at once, the IRS agent suggested I set up an installation agreement. The installation agreement required me to pay a certain amount per month, calculated off of my disposable income after rent, transportation, utility, and other bills were taken out of my net income. I sent in documentation about my rent payment, car payment, copies of utility bills, and how much I was paying in estimated taxes. I also had to agree to file and pay my taxes on time to keep the installation agreement in effect. It took over a year to get the installment agreement set up, as the IRS took a significant amount of time to process each step in the process. I received many notices from the IRS that indicated they were working on my file, but needed another 45 days to process the information.
Because I owed over $10,000, the IRS required a tax lien. This lien applies to any real property that I own, such as my car or if I owned a home. Before I could sell one of my assets, the IRS would have to be paid in full. In addition to the difficulty that came from having all additional income sent to the IRS, I also received a 100 point drop in my credit score. Everything from renting a new apartment when I moved to trying to set up a merchant account for my business became an incredibly stressful experience. I constantly worried, wondering if the IRS was going to levy my bank account before I could get an installment agreement set up with them.
Although everything worked out between myself and the IRS in the end, I definitely overlooked a few options that would have made my life significantly less stressful. An accountant could have looked over my tax returns and maximized the amount of deductions and tax credits I could take, as I redid my taxes as part of the process and discovered that my liability was lower than originally assumed. An accountant would also know exactly what steps the IRS takes throughout the collection process, and how to negotiate with them much more quickly than I did.
The main thing to keep in mind if you ever end up in a similar situation is to start talking to the IRS as early in the process as possible. They were, on the whole, pleasant to talk to and helpful in letting me know what options I had available. As long as I was making steps to resolving the issue with the IRS, they did not make me feel guilty or attempt to shame me for running into tax issues. An accountant could have significantly lowered the amount of stress that the process had on me.