Being in debt, in general, is never a pleasant situation. No one wants to find themselves in a financial abyss, but it happens. It’s pretty common for people to despair and start making one bad decision after another when they find out that their debts are getting out of control. Since not all debts are the same, there are some types that might make you worry more than others, such as tax debt. Dealing with the IRS is different from dealing with a bank or another lending institution. Millions of people receive tax penalties every year, according to the IRS. To help you avoid these penalties and reduce your debt, here is a list of the options you should consider.
Never Ignore Tax Debt
A lot of those who are deep in tax debt choose to ignore the problem because they don’t have the cash to settle the debt. This is a very wrong move, and it can only make the problem worse. It’s highly recommended to continue filing your taxes on time and look for extensions as well, even if you don’t have the money. The late-filing penalty can reach up to 25% of the total balance, and if you are unfortunate enough, the underpayment penalty can reach another 25% if it’s left unchecked for months. The IRS isn’t your average creditor so try to prioritize paying back your debt over other creditors because the penalties can be quite rough.
Offer in Compromise
The IRS is not a very forgiving federal department when it comes to tax debt, but fortunately, they can still give you a way out. While this option is not easily given to individuals, it is a viable course of action for certain people. An “offer in compromise” is a settlement application for the tax liability that will help you settle for less than the debt owed. As mentioned on https://silvertaxgroup.com/offers-in-compromise/, filing the application doesn’t automatically mean that it will be approved. The IRS does its research to know whether your financial conditions are dire enough before they agree to the settlement. You’ll want to be realistic in your expectations because the IRS will be looking into your assets, income, and expenses, not to mention that they will want verifiable proof of your finances.
Installment Agreement Setup
In most scenarios, a payment plan is often the best way to get rid of tax debt as conveniently as possible. It’s worth mentioning that the IRS would require you to submit an application that can be rejected if it doesn’t meet certain criteria.
- You’ll have more chances with the IRS if you provide a plan to pay within 6 years, but a 3-year time-frame is the ideal one.
- If you truly want it to get accepted, you should aim for higher installments than the IRS has in mind.
It’s worth mentioning that any payment plan includes penalties and interest rates will still be applicable until the full balance is paid.
Debt has a seriously detrimental effect on one’s life. It’s not something that you can sweep under the rug and wish for the best, especially when the IRS is involved. The good news is that there is more than one option available for those who are burdened by tax debt. So, take the time to see which course of action suits your financial plan and needs best.