Ways to Avoid Getting into IRS Tax Debt

Last updated on March 27, 2023

Tax debt is not always the result of a taxpayer intentionally not paying or filing their taxes. Erroneously filed tax returns where there are miscalculations or wrong credits claimed can lead taxpayers into tax debt. If the IRS, after the review, finds that you owe taxes because of these types of errors, it will send a notice regarding the collection of back taxes.

Avoid Tax Debt: Correctly Report Income to the IRS

Taxpayers need to report all their income from all sources to the IRS. Income can be reported using Forms W-2, Wage and Tax Statements, and Form 1099 income statements. When calculating your income, check the calculations so that you are sure that you haven’t made a mistake. The most common mistakes on a tax return are about Social Security numbers and math calculations.

Even if a mistake in your tax return does not lead to tax debt, it can slow down the processing of your tax refund. Many miscalculations are corrected by the IRS if they do not impact the amount of taxes you owe. Still, it is best not to allow mistakes on your tax return. It is highly recommended to review all the information on the tax return before filing.

IRS Tax Debt Notices due to Errors

The IRS will send a notice informing the taxpayer about the error in their tax return, the amount of tax debt and how it can be paid. The most common IRS notices regarding tax filing errors are CP11, CP11A and CP11M.

• Form CP11 informs the taxpayer that the IRS has made changes in the return because of a miscalculation and that the taxpayer owes taxes after the changes.
• Form CP11A informs the taxpayer that the IRS made changes to the tax return because there was a miscalculation involving the Earned Income Credit and that the taxpayer owes money after the changes.
• CP11M informs the taxpayer that changes were made to the tax return involving the Making Work Pay and Government Retiree Credit and that the taxpayer owes taxes after the changes.

After receiving the notice, taxpayers must immediately make efforts to pay or resolve the tax debt. If they do not have the ability to pay the tax debt amount, they must consider resolving the debt through IRS tax debt payment plans.

Ignoring IRS Debt

Taxpayers must not ignore or avoid paying tax debt even if they are financially incapable of paying any amount of the debt. The IRS charges penalties and interest on tax debt, so the amount of back taxes owed increases with time. Therefore, it is beneficial to make early efforts to resolve the tax debt. The IRS has many tax debt payment plans for taxpayers with limited or no ability to pay. Taxpayers must consider qualifying for them and resolving their tax debt as early as possible.