Tax debt can be a terrible burden to bear. Follow these steps to get out of tax debt as fast as possible!
The IRS claims that they have $1.1 billion in tax refunds that have gone unclaimed. Not everyone is so lucky to get money back from the government though.
Are you on the other side of this situation and actually owe the IRS money? Don’t let having a tax debt make you feel overwhelmed or helpless.
There are plenty of things you can do to get rid of your debt to the IRS quickly. Here are a few ideas to help you get started.
Act Fast, Act Now
Ignoring your tax problem will only make it worse. The first phase will be penalties incurred on top of whatever you owe. Then the penalties can turn into criminal charges if you fail to file.
The best thing you can do is file, even if you aren’t capable of paying what you owe. It isn’t enough to just file either; you need to file on time.
When you don’t file by the deadline, a 5% monthly penalty gets applied — up to 25% of the total amount you owe. This adds up to a lot of extra debt that could have been easily avoided.
File CNC Status
If you can’t make your tax payments, then file as Currently Not Collectible. This lets the IRS know that you can’t currently pay and they’ll stop trying to collect from you.
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Be prepared to show proof that your income only covers basic living expenses. You’ll continue to accrue interest and penalties. But you won’t have to pay until you can.
This status will also relieve you from liens, levies, and age garnishments.
Consider Your Options
You have a couple of options available to you once you determine that you owe the IRS money. If you’re unsure of analyzing your options on your own, you can work with a company like Precision Tax Relief to help you.
You have 120 days to make payment in full. So if you know you can’t make this deadline, don’t delay in pursuing an alternative solution.
If you owe less than $50,000, then you could be eligible for a payment plan. Just keep in mind that penalties and interest will get added to the total amount you owe.
The process is relatively simple by filing online if you owe less than $10,000. However, it’s recommended that you use a tax debt resolution service if you owe more than that.
Sometimes paying your debt will render you unable to pay your basic living expenses. If this is the case for you, then you may qualify for delayed payments.
This isn’t a long-term solution though. Eventually, the IRS will want their money. The amount you owe might be a nasty surprise then as your debt will accrue interest and penalties while it’s delayed.
The IRS has a plan called the “offer in compromise” that lets debtors settle for less than they originally owed. You will have to prove that you qualify. Only those that can prove it would be a financial hardship can settle their debt.
Get Some Help
Dealing with the IRS and all of their rules can be overwhelming and tricky. It can also be tough to know all of the different options out there that are available to you.
Consult with an accountant, financial planner, or tax professional. They can help you get organized financially so that you don’t continue to accrue more tax debt and penalties moving forward.
That way you only have to pay the debt that you owe right now. They can also identify areas in your life where you can free up some cash to pay off your debt quicker.
Maybe you had a legitimate and good reason why you didn’t file or pay your tax debt. If this is the case, you could request a penalty abatement from the IRS.
You’ll still owe your tax debt, but you can greatly reduce the amount you owe by having the penalties removed.
Not having the money to pay is not a good enough reason to qualify for this process. You must have experienced a major life event. This could be a death in the family or a natural disaster.
Are You an Innocent Spouse?
Innocent spouse full forgiveness is very rare. You have to prove that you had no knowledge of your spouse’s filing actions.
You have to show that you had no idea that there as money owed. Or you have to prove that you didn’t know there were inaccuracies in your joint return.
If you manage to meet the high burden and convince the IRS, then you can have your debt completely forgiven by the IRS. Just keep in mind that the IRS doesn’t just decide to forgive people’s debts.
Did you know that some income tax debts can actually be discharged during a Chapter 13 or Chapter 7 bankruptcy proceeding? This shouldn’t be your first course of action though. You will have a long road ahead of you coming back from bankruptcy.
You should also make sure that your debt will get discharged in the bankruptcy before you decide to take this route. Keep in mind that while Chapter 7 allows for full discharge, Chapter 13 may require you pay a certain portion of the debt you owe.
Take Care of Your Tax Debt
Facing a tax debt is a stressful prospect that you may feel you’ll never get out from under. By using these methods, you can get rid of your tax debt faster and hopefully get back on track.
Whatever you do, do something! The worst thing you can do is try to avoid or ignore the IRS.
The best way to deal with income tax debt is to not incur any in the first place. Start by understanding your paycheck.