If you owe back taxes to the IRS, it’s likely that your primary focus is on getting your back taxes paid off as quickly as possible and with minimal fuss. After all, no one likes dealing with the IRS. But if you take your time and plan things out carefully, there are still ways that you can minimize your loss to the IRS while finding ways to save money in the process.
Figure Out a Plan
Depending on the size of the amount you owe the IRS, you will have different options available to you for paying off your back taxes. Depending on the nature of your debt and the amount owed, you may qualify for different debt relief services offered by the IRS.
First, collect all of your paperwork regarding your taxes and finances for the past year. The first thing you will want to do is to make sure you actually owe the money that the IRS is reporting as your debt. Accidents do happen, so be sure you haven’t overlooked any credits or refunds you forgot to claim. It’s also worth making some phone calls to make sure all of your forms were received and that you aren’t the victim of a bureaucratic error.
If you really do owe the amount reported by the IRS, it’s time to figure out how much you can reasonably pay off up-front. The more you can pay off directly, the better. Even if you can’t pay all of it off, just submit whatever you are able to as payment. This will put you in good standing with the IRS and will make your intent to settle evident.
However, it’s very important that you do not incur more debt while trying to pay the IRS! Don’t open a high-interest credit card for this purpose or borrow from a payday lender. You need to pay only an amount that is sustainable based on your income and debt level. You should also not take money out of your retirement to pay off a debt, as you will incur fees this way.
Which Option Fits Your Need?
You will next need to figure out which of the IRS’s debt repayment options will be appropriate to you, and petition accordingly. Here is a brief look at the tax debt relief programs offered by the IRS:
- Offer in Compromise: You can apply to get an offer in compromise by which you can negotiate with the IRS to settle on an amount that is less than your total owed amount that will be less burdensome for you to pay. In order to qualify, you need to be able to demonstrate that payment of the full amount of your debt places you under an unreasonable amount of burden. In order to qualify, your debt will need to be a sufficiently high amount and you will need to be able to pay the full amount quickly. Your application for an offer in compromise can be rejected if you fail to demonstrate the burden of the full amount so don’t hesitate to look for help submitting an IRS offer in compromise.
- Innocent Spouse Forgiveness: If you file taxes as a married couple, you can petition the IRS to hold only one spouse responsible. However, they are only likely to accept this petition if it really looks as though only one spouse really should be held liable for this amount.
- Installment Plans: You can negotiate an installment plan with the IRS that will allow you to pay back the full amount of your debt over a longer period of time. You can even set it up so that the IRS takes automatic withdrawals from your paycheck. These plans usually are meant to extend for a limited period of time so you will most likely be eligible if you expect to be able to pay the full amount in a short amount of time.
- Ask for an abatement of penalties. Accruing penalties just adds to your burden. If you are facing debt as the result of an unusual tax situation, write a letter to the IRS alerting them to your situation and request an abatement of your penalties.
What To Do Next
While preparing to petition the IRS, gather any paperwork that will help you prove your financial hardship and will explain the circumstances of your failure to pay your taxes. If you decide to look for legal help in dealing with the IRS, be sure you avoid companies that require steep up-front fees or offer suspicious debt relief or credit repair deals. You should only work with a licensed professional who can represent you in front of the IRS.
And as you prepare for the coming tax year, start to check in now on ways to save money. Make contributions to your retirement. Give money to charity. Double check all of your credits and refunds to make sure you are really in the right tax position for your income level to minimize future hardship as a result of debt.