If you owe a tax debt to the IRS, you know you cannot get away from it even if you stop filing your returns. Uncle Sam knows how to recover the dues and stiff penalties only worsen the situation for you in the future. However, there is no need to give up hopes of a settlement. Ignoring the problem is no solution at all. It can hurt you financially and also destroy your credit. Thankfully, there are easy and proven ways to resolve your IRS tax debt problems. Let us learn about these methods in this article.
Do Not Sit on The Problem
You can pretend to forget your debt, but the fact is that the IRS will never forget its dues. Many individuals and businesses make the mistake of not filing their returns on time when they know they cannot pay their tax debt. But not filing your return is no solution. In fact, your penalty continues to grow rapidly even if you choose to not file your returns.IRS proves to be a worse creditor than your credit card companies. It is always a good idea to be proactive and work out a settlement of your tax debt with the IRS.
IRS Doesn’t Forgive its Debt But You Can Expect a Concession
If you are proactive and contact the IRS for a solution to your tax debt, it will appoint an officer to look into your problem and find a solution. Keep in mind that tax debts are rarely forgiven. You can choose to explore the option of Offer In Compromise by filling up Form 656. If the officer feels that you are experiencing genuine financial hardships, he may offer a settlement by reducing your tax liabilities. Chances are low but it is always better to explore this option than to not try at all.
Streamline Your Tax Debt
If you owe a huge sum of money in the form of tax debt, it is always a good idea to approach the IRS and request for the streamlining of the same. If you owe $50,000 in tax, it may not be possible for you to pay the entire amount in one go. But even you would agree that it becomes manageable if the IRS works out a settlement repayment plan where you are allowed to pay your debt in a long period of 84 months.
There is no amnesty from the IRS in this program that is called Fresh Start. You are asked to file all your past returns before you qualify for this program. Imagine getting a chance to pay your tax debt over a long period and starting with a clean slate as a taxpayer. Fresh Start is a good way to restart your financial life with no harm done to your credit.
Pay a Part Now and the Rest in Installments
Working out a settlement plan with the IRS is not difficult provided you are seen as playing a proactive part. If your tax debt amount is not huge, it is a good idea to pay a part of the outstanding debt now and agree to pay the rest of the amount in equal installments over a long period. It is a good strategy to follow if you can afford to pay a big chunk of the tax debt as you pay very little interest as a penalty in this arrangement. It is known as a partial payment installment arrangement and it is accepted by large numbers of taxpayers because of its transparency and simplicity.
How to Know Which Strategy is Best for you
When you approach the IRS for finding a solution to your tax debt problem, the IRS officer tries to analyze your financial condition based on your tax returns. It is based on your finances that he recommends a plan to help you in solving your tax debt problem. The monthly disposable income of the taxpayer remains in the focus of the IRS when deciding on the scheme for him. Offer in Compromise often turns out to be a wonderful scheme if the individual is unable to pay off his entire tax debt in one go. Offer in Compromise is the most attractive scheme for the taxpayer as it not only reduces his outstanding liabilities but also gives him a chance to start with a clean slate with no tax debt over his head. More than 40% of all applications with a request for an Offer in Compromise get accepted by the IRS.
If the IRS officer feels you do not have a lot of monthly disposable income, he is not likely to recommend an Offer in Compromise. In such a scenario, he realizes that making a partial payment upfront and paying the rest of the amount in equal monthly installments is a better option for you. Whatever strategy works out best according to your financial condition is hammered out by the IRS agent. Remember that it is a contract between you and the IRS.
When is it Beneficial to Work With a Professional to Solve Tax Debt Problem?
If the taxpayer owes less than $10,000 in the form of tax debt, it is prudent to approach the IRS without involving a tax professional. If this amount is between $10 and $25K, it is a good idea to talk to a tax professional about available options. If the tax debt is more than $25,000, paying the fee of a qualified and experienced tax professional is a prudent idea as his advice can help you save your money.
Owing taxes to the IRS and not doing anything to do something about your burden will only compound your financial problems. You also hurt your credit as tax debt continues to show as outstanding in your credit report. It is better to be proactive and approach the IRS to work out a solution to your tax debt that is manageable for you. If the IRS feels you are experiencing a genuine financial problem you may qualify for an Offer in Compromise.