What exciting things happened in your life last year? Maybe you got married, started a socially conscious company or switched from full-time to freelance work. Major kudos to you! One downfall of exciting changes? They make filing taxes tricky, and mistakes can be made (even when you’re using helpful tax apps). Since getting scary letters from the Internal Revenue Service (IRS, AKA the US tax collectors) happens to the best of us, we got some killer advice from Pamela Kornblatt, the president of NYC-based Tax Strategists, an accounting firm that provides personalized tax advice. Read on for her list of the things you should and should not do if you find yourself (very unfortunately) dealing with the IRS after April 15.
1. Don’t panic. Getting a letter from the IRS is super stressful, and you’re not alone if your first reaction is total terror. But don’t freak out just yet — take a deep breath and approach it smartly. Pamela says, “When you’re frightened, you may either just pay whatever the letter says you owe (if it says you owe a specific dollar amount) or bury your head in the sand. Neither strategy is effective, so it’s best to keep in mind that the IRS is made up of people just like you and me.”
She also tells us that you should remember that the letter you received might have been sent as a mistake or could be a simple request for info to verify records. Either way, she says to remember that even if there’s a legit issue, working yourself into a nervous frenzy won’t help at all.
2. Don’t pay the IRS immediately. It’s a normal reaction to pull out your checkbook, but Pamela says no matter what, do NOT pay up without investigating first. “There is a reason that the ‘R’ in IRS stands for ‘Revenue,’” she reminds us. “The job of IRS employees is to collect as much money as they can, so they’re HOPING you’ll respond by paying the amount in full.” She says that, while it might turn out that you do owe the amount claimed, it might also be the case that you owe a much smaller amount — or nothing at all. Definitely do your research before making any type of payment.
3. Do act quickly. Pamela shared a story with us, saying, “Recently, we got a call from a man who wanted our help because he had received a letter from the IRS. When we got a copy of the letter from him, it became clear that he had not just received a letter but several letters over many months.” That is *not* ideal.
She tells us that this kind of reaction is pretty common, but that it’s important to avoid de-prioritizing your letter or using “ignorance is bliss” as a coping strategy. The IRS has strict guidelines for how and when you need to respond to a letter, so act with a sense of urgency. She wisely notes, “The longer you wait to dig into what’s happening, the more limited your options become for fighting back. Take action instead of hiding under the covers.”
4. Don’t be afraid to ask for help. You should definitely consider professional help if you get a letter from the IRS, especially if you’re having a tough time understanding the issue. Pamela agrees, “The tax code is complicated, ever changing and a lot more open to interpretation than you might think. Know that accountants and tax pros deal with the IRS often — and can work with you to figure out the best response to the letter.” Plus, a professional is emotionally removed from the situation, so they can give you calm advice.
5. Do get your stuff together. A letter from the IRS will clearly state exactly which parts of your tax return are in question. Once you know what items are in question, start gathering any proof you have: receipts, bank statements, cancelled checks and more. “Ideally, you already keep excellent records, so you’ll have the info. If you’re missing something or need backup from a bank, get in touch right away, because it can take time to get copies of documents you need.” Good documentation means you’ll have a higher probability of a good outcome with the IRS. Not sure exactly which supporting documents you’ll need? Any pro you work with will be able to help you get organized. Phew!
Did you receive a scary letter from the IRS? How did you deal? Tell us your story on Twitter @BritandCo!
(Photos via Getty)