Paying off tax debt can feel like an insurmountable challenge. It is estimated that about 8 million Americans owe over $80 billion dollars in tax debt. If you are one of the millions of Americans who are affected by tax debt, understand that there are many ways in which you can get out of debt safely and efficiently. The IRS has many options in place that allow you to pay off your debt without having to live in squalor. Below are the steps you can take to pay off your tax debt.
Hire a Tax Professional
A tax professional is simply your best bet for handling your tax debt with greater ease. Certified public accountants, financial analysts, and enrolled agents are trained in tax law. Find a professional with experience in the field representing clients on behalf of the IRS. A seasoned expert will be able to help organize all of your tax documents, analyze them for any errors, and devise a plan in which you can pay based on your budget. Ultimately, they are also granted unlimited rights to represent you before the IRS, so that they can negotiate the best plan for you.
Respond to IRS Notices Immediately
When you receive a Notice of Deficiency in the mail, it is in your best interest to act immediately. It can be nerve-wracking to receive any letter from the IRS, but failing to respond will only make your financial matters worse. If you do not respond to the several letters that the IRS will generously give you, they will issue a Notice of Intent to Levy. This is the final notice issued by the IRS and should be avoided at all costs. Should you fail to respond to this letter, then within thirty days of its issuance the IRS is then legally allowed to start seizing all financial assets until the debt is paid. This drastic measure is usually completely avoidable should you take the necessary steps as early as possible.
Appeal for the Fresh Start Initiative
The Fresh Start Program from the IRS is simply a collection of changes to the standard IRS procedures and policies. Once known as the Fresh Start Program, this initiative is designed to help both individual taxpayer and small businesses to settle an overdue tax liability. The idea is that the IRS will make it easier for taxpayers to pay off their debt to avoid liens or have those liens withdrawn. Under the Fresh Start Initiative, you can apply for a few options based on your current financial situation. Remember, you don’t have to go it alone. A tax professional will be able to look over your financial information for you and devise a plan that they know will be best suitable for your financial situation:
- Installment Agreement. An installment agreement allows you to pay the full worth of your debt over a period of time. In this agreement, you will pay the debt in full, but you have the opportunity to reduce or eliminate payment penalties and interest. In order to qualify, you must first pay all past tax returns. You must also owe no more than $50,000 of combined individual income tax, penalties, and interest. If this is the case, you can even set up an online payment agreement. The idea is that you will pay off your tax debt in a reasonable amount of time while also being able to survive adequately off of your income and pay other necessary living expenses.
- Offer in Compromise. With this plan, you have negotiated with the IRS to pay a lower amount of your debt than you actually owe. As you can imagine, an offer in compromise is a little more difficult to obtain, but it is worth it if you can swing it. The IRS will scrutinize your income, necessary expenses, ability to pay, and asset equity before they agree to an offer in compromise. The IRS will usually opt for this if they surmise that they cannot collect all of your tax debt in a reasonable period of time.
Tax debt isn’t a cause for panic. Take the time to assess your options and hire professional tax help to ensure you can begin paying off your overdue balance as quickly as possible.