So, you have a tax debt to the Internal Revenue Service (IRS)? You’re not alone. Luckily, the IRS has systems in place to help you pay down your debt. Whether you work directly with the IRS or employ the help of an IRS representative, here are three ways to tackle your tax debt head-on.
Set Up a Payment Plan
The IRS recognizes that not everyone can pay their tax debt in a lump sum. To facilitate payment, the agency allows you to submit a payment plan for its review and approval.
A Streamlined Installment Agreement can be submitted once you have a few basics covered. First, you must owe less than $50,000 and all of your previous tax returns must be filed with the IRS. Second, you need to outline a plan in which you make regular monthly payments that add up to the tax debt being paid off within three years. Note that interest and fees may be charged when you use the payment system.
More Payment Options With the IRS
If you don’t meet the qualifications for a streamlined plan, there are other options. Many of them involve proving that you do not have the money — either in savings or income — to make payments such that the debt is paid off in three years. In these instances, the IRS may be willing to extend the length of the payment plan or, in extreme cases, be willing to accept an Offer in Compromise. An Offer in Compromise is where you are allowed to pay a portion of what you owe and the rest is forgiven.
Pay Taxes Quarterly
Paying your taxes quarterly may not get you out of debt, but it’ll certainly help avoid getting into more debt. Taxes must be paid quarterly if you anticipate owing at least $1,000 in unpaid taxes each year. Examples of those who may fall into this category are independent contractors who don’t have payroll taxes deducted by their employer, and those who sell a piece of property and experience capital gains above the allowable tax-free amount.
Quarterly taxes must be estimated each year and are due on January 15, April 15, June 15, and September 15, though the date may be adjusted for holidays and weekends.
Work With an IRS Representative
When you need assistance negotiating your tax debt, there are people who can help. Tax attorneys, accountants, and “enrolled agents” (EAs) are all able to act on your behalf. If you anticipate the need to go to tax court or are under investigation for tax fraud, a tax attorney can not only advise you but represent you in a court of law. Accountants and EAs are able to advise and negotiate on your behalf for items like Streamlined Installment Agreements, Offers in Compromise, and audits. Working with a professional will help you determine the best outcome for your situation.
Having a tax debt isn’t a walk in the park, but by utilizing the systems and people available to help, you will be able to move forward with confidence.