Getting behind on your taxes is nothing to be ashamed of. Life has a way of throwing us financial curveballs that are difficult to recover from. Often when we get behind on bills and expenses, our taxes suffer. While the IRS won’t initially come after your home or assets for failing to pay your taxes if the debt is left ignored these are the consequences you can expect. If you’re ready to resolve your IRS debt, here are some approaches you may want to consider.
1. Lump Sum
Paying off your debt in one lump sum may reduce your penalties and accumulated interest. For most families and individuals struggling with tax debt, this may be the most challenging way to get it resolved. However, you may be able to get a loan to pay off your IRS tax debt from a bank or lending company, allowing you to pay your debt off at a lower interest rate in one monthly payment.
2. Tax Debt Forgiveness
In rare cases, you may qualify for tax debt forgiveness from the IRS. If you can prove that paying the IRS back would cause severe economic hardship, they may be willing to forgive your debt. In addition to financial hardship, the IRS may also forgive all or some of your debt if you have been the victim of a Ponzi scheme or a fraudulent tax filing.
3. Installment Agreement
The IRS is fairly reasonable when it comes to tax debt, and in many cases, they are willing to work with you. Rather than making you pay your entire tax in one lump sum, the IRS will allow you to make installment payments. However, not everyone will qualify for the installment agreement plan. The IRS offers both a short and long-term payment plan for installment agreements. If you sign up for the short-term plan, there is a $0 setup fee, whereas the long-term plan has a $31 setup fee if you apply online and $107 if you apply by phone, mail, or in-person. Keep in mind, setting up an installment agreement will not eliminate penalties and interest. In addition to the amount owed, you will also be required to pay penalties and interest until your balance is 0.
4. Offer in Compromise
An offer in compromise is a way for taxpayers to pay back less than what they owe. When assessing your case, the IRS will evaluate the cost of seizing assets and wages in contrast to reducing your debt through an offer in compromise. If the cost of recouping their losses “the hard way” outweighs the cost of an offer in compromise, the IRS will approve your agreement. However, the IRS is an incredibly patient organization that rarely doesn’t get what they’re owed. If you plan on attempting to get an offer in compromise, make sure you use the help of a tax professional who can walk you through the process and get you the maximum reduction possible.
5. Not Currently Collectable
The IRS offers a program where they voluntarily agree not to collect on tax debt for a year or so. Currently not collectible means that the taxpayer has no ability to pay their tax debt. Once a taxpayer has provided significant evidence to the IRS that they are incapable of paying, they may be approved. If the IRS has issued you a notice, you may be able to file a collection appeal to stop a lien, levy, or seizure by presenting evidence that proves your case is not currently collectible.
6. File for Bankruptcy
If you are in over your head with tax, credit card, or medical bills, filing chapter 7 bankruptcy may be the best solution. Filing chapter 7 allows for a full discharge of your taxes whereas chapter 13 will require a payment plan to repay some of your debts. However, you should only consider filing for bankruptcy as a last resort. There are some severe consequences to your credit profile that should be considered before you file. It might be extremely difficult to get a loan for a home or car until the seven years are up on your credit report.
If you’re struggling with tax debt, don’t stress; use this helpful information to get out from under your debt with the IRS.