How to Settle Tax Debt
Among your payment obligations, paying for your taxes should be one of your top priorities. With proper budgeting, paying for your taxes should be generally hassle-free. Some companies immediately deduct your taxes from your salary. If this is not the case, then you have to chip in some extra effort in saving up.
A downturn in your financial situation, however, can lead to unresolved tax debts. Tax debt is the amount of taxes unpaid after the due date passed. Tax debts incur penalties if they are not paid on time. Hence, the longer you put off paying your taxes, the larger the penalties will become. In worst cases your property may be seized by the government as payment.
Easily Settle Tax Debts
The easiest way to settle tax debt is to pay them immediately. You can temporarily borrow money from family and friends. In effect you remove or lessen the penalty amount you are required to pay to the IRS. You can ask for a payment extension as you look for possible sources. The maximum length of extension is 45 days, but you can renew your request after receiving a statement of your penalties and interest.
If no immediate and dispensable cash is at hand, the IRS offers many ways for settling tax debt. You can arrange to pay in installments through the Installment Agreement or the Partial Payment Installment Agreement. In partial payments, a portion of your debt can be waived as the statute of limitations expires. However, partial payments take a longer time to pay than the installment agreement. Penalties are still imposed as you pay the debt over a period of time.
You can also arrange an offer in compromise, wherein you ask the IRS to lower the amount you owe. The IRS is very strict with this kind of offer, and so imposes a strict set of qualifications. They want to make sure that the amount you offer is the highest amount that they can obtain from you. On a similar vein, you can also ask for a penalty abatement to lower the amount of your penalties.
Tax Settlement Tips
If you are married and sharing your tax payments with your spouse through a joint tax return, then you can file for innocent spouse relief. The IRS deems it unfair for someone to be held accountable for other people’s debts. If approved, this waives your liability to pay the taxes that your spouse allegedly owes.
You can also file for bankruptcy, but this is deemed as the least favorable option due to the negative impact it may have on your credit, hence making it harder for you to loan from banks in the future.
Finally, you can declare yourself uncollectible. If approved, the IRS will stop collection activities, e.g. seizure of property, and the IRS will review your financial situation every couple of years to see if you are finally in the capacity to pay your taxes. If the statute of limitations expires (10 years after the initial assessment) and you are still in an uncollectible status, then you will not be required by the IRS to pay your debt.
Before deciding on your course of action, it is best to consult with a lawyer or a tax professional, especially if your tax debt exceeds $25,000. These people are the most qualified to help you decide how to settle tax debt in the way most appropriate for your financial condition.