Posted on: 25 February 2015
The last thing you want to hear is that your small business owes a lot of money to the Internal Revenue Service (IRS) in back taxes. It is a reality that hits some people, and if you're one of them, you might panic and think that you're headed to jail. This doesn't have to be the case because, if you know what to do, you can offer them a settlement, or an Offer in Compromise (OIC). This guide explains the steps to making this offer.
Step 1: Ensure All Tax Returns Are Filed
Review all your previous years' tax returns. If you're missing one, get it filed as soon as possible. Since you may not have access to tax schedules and lists of tax credits for the year you didn't file, make an appointment with an accountant. They can help with this process.
Step 2: Make All Estimated Taxes For the Current Tax Year
Review your tax payments for the current year. Check your records to make sure you are paying an ample amount of federal income taxes and estimated Social Security tax so that you won't owe when you file the current year's taxes.
Step 3: Compute Your Offer in Compromise
When computing your OIC, make a list of your assets. Items to include on this list are:
- amount of equity in your home
- amount of equity in your business
- value of paid off vehicles
- value of paid off boats
- value of jewelry (diamonds, gold and other precious metals and gems)
Total this amount up and add the amount of future income that the IRS can claim. This amount of money is typically the amount that you'll owe in future taxes. For example if you have $20,000 in assets and a future income tax liability of $8,000, you can make an OIC of $28,000.
Step 4: Make the Offer to the Internal Revenue Service
File form 656 with the IRS to make the OIC. Then wait for them to respond to your offer. Additionally, fill in the reasons why you cannot make the entire payment that you owe.
If you can prove that paying the full amount will put you in a financial hardship that is so detrimental that you cannot pay your bills or eat, your chances are greater of getting the OIC approved.
Keep in mind that just because you are making an OIC doesn't mean that the IRS will accept it. Check with your accountant to learn more about filing an OIC. They can also recommend a good lawyer if they determine that you need one. Contact a company like Don Lamb CPA Inc P.S. for more information.Share