Money For Lunch – Tax Debt Holding You Back? Here Are 4 Ways Cut A Deal With The IRS

Tax Debt Holding You Back? Here Are 4 Ways Cut A Deal With The IRS

October 18, 2017 12:23 PM0 commentsViews: 9

 

Owing defaulted tax payments to the IRS isn’t a situation anyone wants to find themselves in, but it can happen to anyone when unexpected disruptions to your finances occur and you end up short when April 15th rolls around. The Federal government isn’t always the friendliest institution to deal with even in the best of times, and when you owe them back taxes it can be tempting to just close your eyes and pretend the problem will go away on its own. But of course, it won’t. The best way to resolve tax debt is to get ahead of the problem and be proactive about finding plans and solutions to help you get back in Uncle Sam’s good graces. There are a number of different approaches to consider, depending on how much you owe and how long you’ve been in default. For really egregious situations that have been neglected for a long time, you might want to hire a tax attorney. If you’re dealing with relatively small amounts or know ahead of time that you’re going to be late or short in coming up with your payment, you may be able to handle it with the IRS directly. Here are a few of the ways a seemingly insurmountable tax debt crisis can be addressed.

  1. Installment Payment Plans

One of the simplest ways to deal with tax debt is an installment payment plan, where your outstanding tax debt is broken down into monthly payments based on what you can afford. If you have a reliable income but just didn’t have enough money put aside to pay the whole tax bill when it came due, this method of resolution can make a lot of sense. You may have to provide the IRS with some of your financial information in order to set up the plan. You may still incur penalties and interest, but you’ll avoid tax liens and can always pay off the remaining balance early if you’re able to do so.

  1. Delay Collections

When you expect to be able to pay off your tax debts in the future, but don’t currently have sufficient income to make payments on an installment plan, you can negotiate with the IRS to deem your tax debt “currently not collectible” for a certain amount of time. This way you’ll avoid liens and collection procedures and can take some time to get back on your feet and come up with the money you need to satisfy the IRS. Just remember, this plan doesn’t automatically kick in when you fail to pay your taxes—you’ll have to get the feds on board with agreeing that there’s no point in them trying to collect your tax debt for now, and this is a case where having legal representation can really help.

  1. Offer In Compromise

If your financial circumstances have changed so dramatically from when you first incurred your tax debt that you’re not sure you’ll ever be able to pay it back, you might try to make a deal with the IRS known as an “offer in compromise,” which means you have to demonstrate to the IRS that your assets and income are far too low to be able to pay down the debt you owe, and they agree to lower the amount due and let you clear your debt by paying off a smaller amount. Obviously, the big advantage of this plan is that you don’t have to pay off everything you owe, but there will be a burden on you to prove that there’s no realistic way the IRS can expect you to pay back the full amount. Once again, the high stakes here mean that it’s a good idea to have an experienced tax lawyer on your side.

  1. Bankruptcy

It may seem like a last resort, but if you’re completely overwhelmed by debt, it might make the most sense to file for a type of bankruptcy that will allow you to discharge some of your tax debts. You almost certainly will need legal professionals in your corner if this is the option you choose to go with.

The solution that will work best for you depends greatly on your individual financial situation, the amount of money you owe the government, and the length of time you’ve been avoiding paying them. Just remember that the worst thing to do is ignore the problem. The IRS isn’t going to forget about you, and one way or another they’re going to come for what they think you owe them. Being deep in tax debt can feel like a hopeless situation, but if you meet it head on armed with a plan and full awareness of your legal rights and options, you can get yourself out of the hole and go back to working and earning money without the specter of an implacable government agency looming over your shoulder.

 

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