Getting riddled with tax debt can ruin the happiest of days for anyone. Perhaps you forgot the filing date, overlooked the letters from IRS, or simply didn’t have the time. Regardless, now you must face the music in the form of punitive action, with 5% to 25% interest, lien on property, or even jail in extreme cases.
However, you are not the only victim of tax debt. Every year, millions of people suffer this problem. So, what do you do? First things first, don’t panic. There are ways to get rid of this problem, and this article should get you started.
Pay the Debt in Installments
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If you can not pay your tax debt outright, there is an option to spread the payment over a period of 120 days or more. This is an attractive option if you do not have the money to settle the debt immediately, but your financial condition is stable enough to pay regular installments. However, the IRS will levy additional interests and penalties according to the situation, in addition to any setup fees depending on your selected payment method.
Request to Delay the Collection
You can also request the IRS to delay the recovery until you have enough money to pay it off. This option is particularly helpful if you are a small business owner, freelancer, or self-employed, because you need cash-in-hand to keep your income source operational. You still have to pay penalties and interest, but it is a better option if your business is on the verge of completing a contract or is about to get a big inward transaction, and you need that edge to make it happen.
Negotiate for an Offer in Compromise
In some cases, you may not be able to pay your tax debt at all. At other times, you might be able to clear it off, but that would jeopardize your financial stability. In such cases, you can request the IRS to offer you provide you with an offer in compromise. However, success is not always guaranteed, and there are numerous checks in place to determine your eligibility.
Contact a Tax Professional
Tax pros have in-depth knowledge about tax relief, and can mitigate any immediate threat from the IRS. As a first step, they can provide a free consultation about avoiding consequences. They can also show you various ways to minimize taxes, and help you get rid of punitive action. Most importantly, a tax pro can help you get an extension, because inability to pay is not a crime, but delays in filing are punitive.
In any of these cases, the final decision rests in the hands of the IRS, which is why you need to make a convincing argument about your financial condition. The facts and numbers may be on your side, but presenting them in the proper format is what tax professionals do for a living. So, the best thing to do in serious cases is to consult a tax professional for complete peace of mind.
