Ways to Settle IRS Tax Debt
Tax season brings a lot of stress and anxiety for some. That stress could extend long after tax season if you have a large amount of tax debt. It does not take long for tax debt to pile up. It is never a good idea not to pay your tax debt. The government will always come after you for payment. When they do, not only will you owe them your back taxes, but then fees and interest will be added to the bill. The longer you wait means, the larger the bill gets. But, contrary to popular belief, the government is willing to work with you when it comes to paying the money you owe them.
The Internal Revenue Service (IRS) does offer some options. However, it is essential that you understand your options and pick the strategy that works best for you. It is also a good idea to do this before you let the tax debt to pile up.
Create an Installment Plan
When you create an installment plan with the IRS, you are creating a contract with them. You agree to pay them a certain amount each month until you have paid off the debt. The IRS has some criteria before they will agree to an installment plan. First, you must have filed all of your tax returns up to the current date. You must have paid your state taxes and any late fees that were due. Finally, you must ensure you pay the total amount the IRS is requesting each month. The IRS uses a calculation to determine how much they require you to pay each month.
Not everyone will qualify for an installment plan. While the IRS would always prefer to receive payments each month than nothing else at all, they are not interested in entering an agreement with someone that has a record of not making payments. They also do not want to make an agreement with someone that they do not believe is going to make the monthly payments. If you owe more than $50,000, the IRS will not make an installment plan with you.
Make an Offer in Compromise
Sometimes, the IRS considers a settlement with you. This means they allow you to pay a lump sum amount that is lower than what you owe in back taxes. This is why it is an offer in compromise. However, for the IRS to allow this, you must prove to them that you cannot afford to pay the amount you owe. You offer to give them a lump sum of a reduced amount or make installments over a short period. It is critical that you understand that the IRS is not going to accept a few cents for every dollar you owe them.
To make an offer in compromise, you must fill out a specific form and pay a $186 filing fee. On the form, you have to outline details about your income, spending, assets, and equity. In addition, you must file a statement regarding your income for IRS to determine your ability to pay.
The IRS uses your net worth, available credit card, and lines of credit when making the decision about a compromise offer. They will look at your expenses and income to make a decision about what you can afford to pay every month. If you have an open bankruptcy, you cannot apply for a compromise. With a compromise agreement, you must pay your tax debt within two years.
Wage Garnishment
If you do nothing about the money you owe the IRS, they will garnish your wages. If you cannot come to some agreement about how to repay the money you owe, they will also garnish your wages. In addition to garnishing wages, the IRS can garnish other federal payments you may receive. These could include any tax refunds or Social Security benefits. They will continue to garnish until your tax debt is paid. If the IRS begins garnishment and you cannot afford to live, you can contact the IRS to negation a modification to the amount they are garnishing.
Innocent Spouse
There are a few provisions under the innocent spouse relief. They can be complicated. You may want to consult professionals that are knowledgeable about filing for these provisions with the IRS.
Anytime you file a joint return with a spouse, you can be held responsible for your spouse’s debt. Even if you are separated, you can be held accountable. Even after you are divorced, you can be held personally responsible for a tax debt that occurred while you were still legally married, even if you were separated.
The IRS does provide some form of relief for those how are married or separated if one spouse hides tax liability from the other. The spouse that was misled must be able to prove that the other spouse failed to report income, misreported income, or took credits or deductions that were not allowed. You typically have two years from the time the IRS first attempts to collect the money to file for this type of relief.
There is another provision that can provide relief for legally separated or divorced partners that have not lived in the same household for one year prior to the application for relief. For example, this relief applies to a partner that signed a joint tax return, but the other partner did not let the first partner know about the incorrect information it contained and also visit https //twitch.tv/activate code.
There is also equitable tax relief that is available for those that do not qualify for one of the two provisions listed above. For example, one spouse must show proof that a line item listed on the joint tax return belonged solely to the other spouse and therefore is not their responsibility. This type of relief can apply when the information in the joint return was accurate, but the amount due was not paid at the time of filing.
There is also a statute of limitations on which the IRS has to collect the debt. They have ten years from the date of the assessment, which is typically soon after the taxes were filed, to collect taxes and any fees or interest that applies. Tax advisors often use this statute as a way to resolve a tax case. There may be ways a taxpayer can stall when IRS attempts to collect to get to the statute of limitations. However, this is a considerable risk. You could fail and end up owing increased fees, penalties, and interest. This does not always work well, so tread cautiously.
You can also ask IRS to put a hold on your case if you can provide other reasons why you cannot pay your tax debt at this time. This is a temporary fix, and IRS lets you know when you must pay. However, this does prevent the IRS from garnishments, liens, or other methods of collecting your debt.
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