The 6 Tax Debt Solutions (and 1 Last Resort)

| January 9, 2014 | Categories: Debt, Taxes | Comments Off on The 6 Tax Debt Solutions (and 1 Last Resort)

While debt can be daunting period, it can be even more dreadful when it’s the government you owe money. Whether the sum is large or small, you should not panic. There are a few tax debt solutions, at least one of which should work for your situation.

1. Just pay it all.

Obviously if you have the money to pay it all (without causing significant hardship), this isn’t a problem and you are probably more annoyed than worried about the money you need to pay. That’s great. Just pay it all already.

This is the most ideal option anyway. If you can’t afford to pay it all, consider taking out a loan for the amount you owe, so you can pay the IRS. While this may seem the same as using a Monthly Payment Plan with the IRS, it may actually be cheaper in the end. By paying it all off, you avoid interest and late payment penalties.

2. Monthly Payment Plan

On the other hand, you can pay the IRS monthly. While this will work so that you do not have to pay your debt immediately, it will incur penalties for being late as well as building up interest for as long as it takes to pay the debt.

3. Short Term Extension

Are you just looking for temporary tax debt solutions? A short term extension may work for you. If you qualify, you may be able to postpone your payment for up to 120 days. At that time, however, you will be required to pay the IRS the entirety of what you owe them. This will only work if you just need temporary relief.

4. Offer in Compromise

Previously the only way to reduce the amount of money you owed the IRS, an Offer in Compromise is allowed under one of three conditions: if there is doubt that you can pay what you owe, if there is doubt that you really owe what the IRS says you do, or if there are extenuating circumstances that the IRS has considered. Then you can pay the reduced amount in one payment, in five (or less) payments, or in regular payments within two years of the IRS receiving the offer.

5. Partial Payment Installment Agreement

As of 2005, there is one other way to reduce the amount you owe the IRS: by applying (and qualifying for) a partial payment installment agreement. If the government agrees, you will have to pay your installments on time. You are also agreeing to allow the government to review your financial situation every two years (until your debt is paid) to see if there have been changes. From this review, you may have to pay more each installment. The IRS may even end the agreement.

6. Currently Not Collectible

While this may sound like a good idea, it’s not the best plan. If your taxes are deemed “currently not collectible,” it means the IRS have agreed not to collect the money you owe them presently. In the meantime, it will still collect interest and penalties fees, making the debt much higher once the IRS decides you can pay. This is only a temporary fix that will hurt you in the long run.

7. Bankruptcy

This is a last resort. Of course you could file for bankruptcy if you can’t pay your tax debt, but this will ruin your credit history and cause future problems. There are other ways to fix your tax debt problem. Bankruptcy is not a good idea, and taxes are often not discharged in bankruptcy.

While these are all methods that have worked, they may not all work for you or your situation. Do your research before settling on one method, and contact the IRS if you have any questions.

Note: Tax debt is generally not dischargeable through bankruptcy. Other debts normally are dischargeable through bankruptcy, which may increase your ability to repay tax debt.. Always consult qualified legal counsel if you are considering a bankruptcy filing.

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