Owing any amount of money to the IRS can be a significant source of stress. While owing less than $10,000 may not seem as daunting as owing six figures or more, failing to address a smaller tax debt can still lead to penalties, interest, and potential collection actions. The good news? Being proactive can help you avoid bigger problems down the road and may even reduce what you owe through relief programs.
In this post, we’ll walk you through why owing under $10K to the IRS is still a serious matter, the steps you can take to resolve your tax debt, and when to seek professional help. To talk to a specialist now, contact us at Damien’s Law today.
Key Takeaways
- Penalties – There are late payment and late filing penalties.
- What if you owe under $10,000? The IRS may issue tax liens or garnish wages on any level of tax debt.
- How to prevent collection actions – Set up monthly payments.
- Financial hardship – You may be able to avoid collections efforts by showing that your account is Currently Not Collectible.
- Hiring a tax pro – For complex situations, you may want to contact a tax professional.
Why Owing Under $10K Is Still Serious.
If you owe less than $10,000 to the IRS, you might think it’s a manageable issue that doesn’t require immediate attention. However, even this level of tax debt can escalate if ignored. Here’s why:
- Penalties and Interest Add Up Quickly
- The IRS charges both penalties and interest on unpaid tax balances, which can significantly increase the total amount owed over time. These charges can turn a $10K debt into a much larger financial burden.
- Collection Actions Are Possible
- While the IRS typically reserves tax liens for debts over $10,000, they still have the authority to issue liens and take other collection actions like wage garnishments or levying bank accounts. Ignoring the debt can lead to serious consequences. Learn more about how the IRS handles tax debts of 100k or more.
- Tax Debt Is a Priority for the IRS
- Even if the balance is small, the IRS takes unpaid taxes seriously. Failing to address your debt could result in an escalating series of notices and collection actions.
The takeaway? No matter the amount, it’s important to tackle your tax debt before it grows into a larger problem.
IRS Notices and Checking for Tax Debts From Other Years
If you’ve received a notice from the IRS about an unpaid balance, it’s important to take it seriously. But don’t stop there. Consider these tips:
- Verify Your Total Tax Liability
- IRS notices often address a single tax year. Use the IRS Online Account portal to check for unpaid taxes from other years. It’s crucial to confirm your total liability.
- Address Unfiled Returns
- If you have unfiled tax returns, the IRS may assess your tax liability using a Substitute for Return (SFR), which often overestimates the amount owed. Filing all overdue returns is essential to ensure accuracy and avoid additional penalties. Because there’s no statute of limitations on unfiled tax returns, the IRS can issue an SFR at any time.
- Get Compliant
- Many IRS resolution programs require taxpayers to file all past-due returns before they can set up a payment plan or pursue other relief options.
Basic Payment Plan Options
If you owe under $10K, there are different payment options to consider:
- Short-Term Payment Plans
- If you can pay the full amount within 180 days, a short-term payment plan can be set up quickly using the IRS’s Online Payment Agreement tool. This option avoids long-term interest and penalties.
- Guaranteed Installment Agreements
- Taxpayers who owe $10,000 or less, have filed all required returns, and can pay off the debt within three years are eligible for a guaranteed installment agreement. This agreement is automatically approved if you meet the criteria and can also be paid through the IRS’s Online Payment Agreement tool.
- For both of the Installment agreements listed above, you must not be currently going through bankruptcy proceedings, you must have filed and paid your taxes in full for the last five years and must file and pay your taxes in full while the agreement is in place.
- Currently Not Collectible (CNC) Status
- If you cannot afford to make payments due to financial hardship, you may qualify for CNC status. This halts IRS collection actions temporarily, though interest and penalties will continue to accrue. If you are in a situation where you are unable to make payments to the IRS because it would cause you financial hardship, this is a great place to start.
- Offer in Compromise (OIC)
- While rare for smaller debts, an OIC might be an option if you can demonstrate that paying the full amount would cause undue financial hardship. Initiating an Offer in Compromise can be a lengthy process and isn’t available to all. You might want to contact a tax attorney or other tax professional if you owe less than $10,000 in tax liability to see if this is an option for your unique circumstance.
When to Resolve the Tax Debt Yourself
If your tax situation is relatively straightforward, you might be able to resolve it on your own. Consider handling it yourself if:
- All required tax returns are filed and you don’t need to make any changes.
- The debt is limited to $10K or less and pertains to a single tax year.
- You have a stable income and can set up a payment plan online.
- You feel comfortable handling the issue by yourself.
The IRS’s Online Payment Agreement tool is user-friendly and a great resource for these scenarios. If you are able to pay your tax obligation in a relatively short amount of time, usually within three years, going this route may be straightforward enough for you to initiate.
When to Hire a Professional
Some situations call for the expertise of a tax attorney or professional. Consider seeking help if:
- You have multiple unfiled returns and are unsure how much you owe.
- You’re dealing with an incorrect SFR.
- You want to explore penalty abatement options, such as first-time abatement or reasonable cause arguments.
- You’re considering an OIC or CNC status.
- You suspect errors in the IRS’s assessment or want to ensure the best possible resolution strategy.
A tax attorney can help you navigate these complexities, negotiate with the IRS, and potentially reduce the total amount owed.
Collection Actions, Penalties, and Interest
Ignoring your tax debt can lead to significant consequences, including:
Additionally, penalties for failure to file and failure to pay, along with accruing interest, can cause your balance to grow exponentially. However, penalty abatement may be available if you qualify based on first-time abatement rules or reasonable cause.
Take Action and Contact Damiens Law Today
Addressing a tax debt under $10K promptly can save you money and reduce stress. By acting quickly, you can avoid additional penalties, interest, and collection actions. If your situation is simple, use the IRS’s online tools to set up a payment plan or resolve the debt yourself.
However, if you have unfiled returns, complex circumstances, or want to explore penalty abatement or other relief options, seeking professional guidance is a smart move. At Damiens Law, our experienced tax attorneys can help you achieve compliance, negotiate with the IRS, and secure the best possible resolution.
Contact us today for a free consultation and take the first step toward resolving your tax debt with confidence.
