Taxation & Estate Planning

The first step to ending IRS collection problems: Finding the money for estimated taxes

By howardlevy

If you have had trouble paying taxes to the IRS in the past and would like to settle up, the first step is to ensure that you are paying your taxes now.  The IRS will not negotiate unless it sees that you are current on your taxes. And any solution that is negotiated will quickly default if your taxes do not remain current.

If you are self-employed, the best way to make the IRS happy is to open up a separate bank account to set aside the money to pay this year’s taxes. Put you name and the words “estimated tax account” on account.

Take a percent off the top of every check you receive for your services and depositing it in the IRS tax account.  I like to review a profit and loss for my clients and recent tax returns to accurately determine the correct amount to set aside. Usually, the rate is in vicinity of 10-20% of the gross check. Once the percent is determined and the bank account is there for the money, my clients find the process is more manageable.

You then pay the money in the estimated tax account over to the IRS four times a year – on April 15, June 15, September 15 and January 15.

Doing this is sweet music to the ears of an IRS collection officer – you are demonstrating that you take your tax obligations seriously. You have “rehabilitated” yourself in the eyes of the IRS – yesteryear’s mistakes are past history.  This alleviates IRS worries that you will default on your taxes again.  You maybe self-employed, but you are finally treating yourself for tax purposes like an employee.  It is good for you, and good for the IRS.

Finding the money for estimated taxes to the IRS is as important as any other expense you have in your budget.  You cannot pay the credit cards and not the IRS – the IRS comes first.   A close budget review can find the money. If not, more severe options might be necessary to find the cash flow, like eliminating in bankruptcy unnecessary debt that is preventing you from paying the IRS.

Full post as published by IRS and the Law on August 22, 2009 (boomark / email).