Methods To Settle Back Taxes Owed
There are many methods to settling back taxes with the IRS. The IRS has created settlement methods for every type of financial situation. There are thousands upon thousands of people that cannot pay taxes owed annually. The worst thing you can possibly do is just ignore the problem. If no agreement is made with the IRS, penalties and interest grow very quickly. Below are the settlement methods available under the IRS.
Use a Tax Relief Professional
When you have tax problems, it is always highly suggested to use a tax professional. A tax relief professional’s job is to analyze your financial situation and help you make the right choices regarding your specific tax problem. On average, a tax professional saves individuals time and money by using their services over handling the situation on their own. These professionals are also experts in all the solutions mentioned below.
Pay Taxes Through an Installment Agreement
An installment agreement is the most common form of tax settlement. Once an installment agreement is accepted, the IRS will consider you to be on good standing as long as you make your payments on time and meet the minimum payment amount each month.
Pay Taxes Through a Partial Payment Installment Agreement
This method is available for individuals that cannot make the payments required with an installment agreement. The partial payment option allows for smaller monthly payments that may add up to less than the total amount of tax owed. The tax payer is subject to go under review to see if the IRS can increase payments or terminate the agreement.
Settle Using the Offer in Compromise Program
An offer in compromise is a method used for settling tax amounts owed for far less than the original amount owed. If you have ever heard of tax settlement companies advertising, “settle for pennies on the dollar,” this is how it is done.Getting Declared Currently Uncollectible
The IRS can determine that you are currently uncollectible, and once this happens they will halt all collection actions against you and will review your financial situation after a given period of time. People can end up paying no taxes at all if they combine this option with the next method.Letting Statute of Limitations Expire
The IRS typically has 10 years to collect taxes owed from the date of the original assessment. If 10 years passes and the IRS has not collected, they can no longer collect these tax amounts.Paying Taxes Owed in Full
This is the most obvious one, and once taxes are paid in full all IRS actions against you will stop. Sometimes in order to come up with the money it may take a little thinking outside the box. One common method for obtaining the money to pay taxes back is to borrow money from your home through a home equity loan, which will settle your back taxes and allow you a low monthly payment at the rate of your mortgage to pay off the taxes. You can also consider borrowing from family and friends or selling some assets.Use the Penalty Abatement Provision
Most individuals that owe back taxes owe a large amount of penalties on top of the tax amount owed. These penalties can grow quickly and can make up for the majority of the tax amount owed. The IRS allows individuals to abate part of or all of their penalties accrued on their tax debt if they can show a legitimate reason for not being able to pay.Prove Financial Hardship to the IRS
Taxpayers that can’t pay taxes because they have no cash, assets, or any ability to pay will still constantly get harassed by the IRS to pay. Individuals do not have to keep taking this constant harassment from the IRS. There are ways to get your account put on hold if you prove financial hardship.