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REDDITDo you feel like you’re in over your head in tax debt? You’re not alone. So many Americans get behind on their taxes because of medical expenses, credit cards, and many other curve balls life throws at us. No matter how far in debt you might find yourself, you can always work your way out. If you have received a notice from the IRS and you’re ready to do something about your back taxes, keep reading for ways to settle your IRS debt.
File For Bankruptcy
Filing for bankruptcy should be viewed as a last resort when it comes to settling your tax debt with the IRS. However, if you are truly in over your head with tax, credit, and medical expenses, filing for bankruptcy may very well be your best option. However, filing for bankruptcy doesn’t magically solve all of your financial problems—there are some major drawbacks. Filing for chapter 7 is essentially giving your credit score the death penalty. For the next seven years, bankruptcy will appear on all of your accounts and credit reports. Even after the seven years are up, creditors may still view you as a high-risk investment and you might find that you won’t be able to get the lines of credit you may need. If the only major debt you’re looking at is from back taxes, filing chapter 7 with the IRS will most likely not be your best option.
Installment Agreement
When you owe back taxes for multiple years of delinquency, each individual debt accumulates its own interest and penalties. The IRS doesn’t combine any past due annual filings into one account. If you owe for multiple years, you may have realized that the IRS has been sending you letters for each individual year. If you continue to ignore the IRS they may send you a letter notifying that they intend to put a lien on your property or garnish your wages. Once the IRS garnishes your wages and takes your assets, it can be nearly impossible to get them back. The good news is that you can prevent all of this from happening if you stay on top of your notifications and apply for an IRS installment agreement. An installment agreement is a payment plan that can be made with the IRS when you can’t afford to pay your taxes in one full payment. If approved, the IRS will allow you to consolidate your tax debt and make monthly payments towards its balance. Late fees will continue to accrue until it’s paid off, so it’s best to slough off the outstanding debt as fast as possible.
Offer in Compromise
Unlike an installment plan, an offer in compromise may allow you to pay less than what you owe on your taxes. There are, however, some fairly strict requirements to qualify for an offer in compromise (OIC). The IRS may agree to an OIC if:
–Paying the taxes owed would cause unfair economic hardship for the taxpayer.
–The IRS doesn’t believe that they will be able to recover the money they are owed through other means of collection such as wage garnishment or liens.
–The statute of limitations is about to run out and the IRS is worried about not collecting anything before time expires.
If you owe significant back taxes and it’s obvious that you won’t be able to realistically pay them back, consider hiring a professional tax consultant who can assist you in getting your tax debt reduced.
Pay it back with a Loan
A common way to settle your credit card debts is to get a loan from the bank, and then pay the bank back in one monthly payment rather than multiple creditors. The same can be done with IRS tax debt using a loan from a private lender. This isn’t necessarily the smartest debt solution, however. If you don’t have great credit, you may be looking at interest rates that are higher than what the IRS will offer you. In most cases, it’s better to deal with the government directly versus creating a debt to pay off another one.
Don’t wait until the IRS is garnishing your wages to take action and pay them back. Get in touch with a tax professional and start solving your back tax issues as soon as possible.
