Tax debt can be difficult to carry, and the IRS has a lot of control over how it is handled. Fortunately, there are options for settling your tax debt and reducing or eliminating the amount that you owe. These options range from negotiating with the IRS to taking advantage of alternative solutions such as payment plans or partial cancellation of debt.
Understanding each option's advantages and disadvantages is key to getting the best settlement. Before settling on a course of action, take the time to evaluate your financial standing and ensure you are making an informed decision that is best for you.
When it comes to settling your tax debt with the IRS, it's important to first have a clear understanding of your tax situation. This includes knowing the types of tax debt you owe and the amount you owe. Here are some common types of tax debt:
Back taxes: These are taxes that you owe from previous years but have not yet paid.
Unfiled taxes: These are taxes for which you haven't filed a return, either on time or at all.
Underpayment penalty: This penalty is charged when you owe taxes but doesn't pay them on time.
To determine the amount of taxes owed to the IRS with ease! Utilize "Where's My Refund" online or simply call the IRS directly to discover how much you owe. Additionally, you can review your past tax returns to make sure you haven’t missed any taxes owed, or if you filed an incorrect return.
Reviewing your past tax returns is important in understanding your tax situation. It can help you identify any errors or discrepancies that could be contributing to your tax debt. For example, if you failed to report all of your income or claimed deductions you weren't eligible for, your tax debt will be higher.
By reviewing your returns, you can catch these issues early and take steps to correct them. Additionally, If you find any errors, you should file an amended return as soon as possible.
Settling your tax debt with the IRS is a complex process, and you may need help from an accountant or lawyer if your case is particularly complicated. Depending on the specifics of your situation, you might be eligible for an Offer in Compromise (OIC). With this option, the IRS will accept less money than what you owe in order to settle the full amount due. If accepted, you will have to pay the reduced amount in a lump sum or as monthly payments over a period of time.
Another option is requesting Currently Not Collectible (CNC) status, which allows you to temporarily postpone payments until you are able to make them. You must meet certain requirements for this option and demonstrate that paying taxes would cause economic hardship for yourself or your family. Finally, there is also a payment plan option if none of the other options are suitable for you. Through this route, you can work out a deal with the IRS to pay off your debt over time in manageable installments.
Several options are available to you when settling your tax debt with the IRS. Here is a brief overview of some of the most common options:
A payment plan is an agreement between you and the IRS to pay off your tax debt over a period of time. There are several types of payment plans available, including:
Short-term payment plan (due within 180 days)
Long-term payment plan (installment agreement)
It allows you to pay off your debt over time.
It stops collection actions, such as wage garnishments or bank levies.
It may accrue interest and penalties until the debt is paid in full.
If you default on the payment plan, the IRS can take enforcement actions.
An Offer in Compromise is an agreement between you and the IRS in which you offer to pay a reduced amount of your tax debt. To be eligible for an OIC, you must:
Have filed all required tax returns.
Remain aware of all expected tax payments for the current year to ensure that you are always up-to-date.
As a business proprietor, it is absolutely essential to timely deposit all federal taxes due for the current quarter. Doing so will ensure that you remain compliant and avoid any penalties or fines associated with unpaid taxes.
It allows you to pay off your debt for less than the full amount.
It may be a good option if you cannot pay your debt in full through a payment plan.
It can be difficult to qualify for an OIC.
Even if your OIC is accepted, the IRS will keep your offer open for 2 years, and if your financial situation improves you may be required to pay more.
Negotiating with the IRS can be daunting, but it is possible to come away with a favorable outcome if you take the right steps. First, be thorough and organized when presenting your case. Make sure that all documents and financial information are in order and accurately reflect your current situation. Be open and honest about any potential discrepancies so that the agency doesn't view them as intentional attempts to avoid payment. It's also important to remain calm, composed, and polite throughout the proceedings even if the negotiations become heated.
Second, make sure you understand how much money you owe, how much interest or penalties have been added on top of it, and how long you have until your taxes are due. Make sure to see if you may qualify for the IRS fresh start program or the IRS forgiveness plan. Don't forget to inquire about what payment plans are available to you before entering into negotiations. By doing some research ahead of time, you can work out solutions that fit your budget and make it easier for both parties involved.
Finally, don’t give up! Negotiations may seem like a drawn-out process at times, but by being patient and consistent in all of your communications with the IRS representative or attorney assigned to your case you can still achieve a satisfactory agreement.
Don't let the IRS catch you off guard - be prepared. To ensure that your taxes are compliant and to avoid any unwanted letters, stay up to date on all tax laws and regulations. Time is of the essence if you have already encountered a problem with the IRS; seeking professional assistance right away will help speed up the resolution.
Trying to go at it alone can be complicated and time-consuming, and may not result in the best outcome. Do yourself a favor and save yourself the headache by reaching out to professionals who can help guide you through the process.