Facing the IRS - How to Deal
with Tax Debt (The Smart Way)
home equity articles and tips
Taxes are complex, stressful, and basically the bane of every human's existence. Commercials that warn the IRS could take everything you own pepper the airwaves and warn against ignoring your tax debt. Those commercials are right, but you don't need to be nervous about dealing with the IRS. You just need to know a few smart tactics for dealing with the IRS if you have existing tax debt.
Installment Agreement
This option is exactly what it sounds like. The IRS will allow you to make payments each month to reduce your tax debt over time. You can pay the minimum payment based upon the maximum amount of time the IRS will allow you to pay or you can pay the debt off in less time with larger payments. Many people who have tax debt could easily handle a simple installment agreement, but they don't take advantage of this offer because they don't know it is an option. If you could pay off your tax debt over time and work these payments into your budget with your current financial situation, this is a good option for you.
Not Currently Collectible
If your financial circumstances are dire, you may want to consider this option. The IRS will place collection efforts on hold for one year and revisit your situation at the end of the term. Remember that interest accrues during this payment hold. If you honestly think that you will be better off financially in a year, this could be a good option for you. However, if things don't look good for the next year, don't use this method simply as a way to procrastinate. If you aren't able to pay it off after the year, you haven't helped yourself at all because you've just been accruing interest over this period of time.
Offer in Compromise
This option allows the debtor to pay less than the full balance owed to the IRS. This option tends to require a lump sum payment or just a few large payments to satisfy the agreed-upon balance. If you find that you have a lump sum available that's short of your full balance owed, consider calling the IRS to work out a deal. Once again, many people stress over tax debt and allow their debts to hang in the balance because they don't know about options like this that are readily available to them.
Partial Payment Installment Agreement
If you're unable to manage the payments required under a traditional installment agreement, you may be eligible to pay a reduced amount each month. At the conclusion of this installment agreement, and as long as you maintain payments each month, you'll be forgiven the remainder of your tax debt. Unless your financial situation is absolutely dire, you should be able to swing this every month. Eventually, you might be at a point where you are able to pay the full installment, allowing you to pay off the tax debt more quickly.
Bankruptcy (a last resort)
Bankruptcy is a life changing event, but you may be eligible to discharge your tax debt under the rules of Chapter 7 or Chapter 13 bankruptcy. You shouldn't choose bankruptcy as a first choice to satisfy a tax debt since it may impact your financial health for several years. This isn't the best option for everyone because bankruptcy effects much more than your taxes. Speak with a lawyer before deciding to file.
Remember that the IRS wants to work with you on your tax debt because it's cheaper to get you on a payment plan or into some type of agreement than it is to bring you to court or place liens on your property. If you feel you're not up to the task of negotiating with the IRS, consider speaking with a CPA or lawyer to discuss your options.
AUTHOR BIO: This article was written by Dixie Somers, a freelance writer who loves writing for business, finance, women's interests, and technology. She lives in Arizona with her husband and three beautiful daughters. Dixie got her information for this article from a certified public accountant in Nevada who helps clients with taxes and tax debt.
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