[dropcap]W[/dropcap]hether it slipped your mind and you forgot to file an income tax return this year, or you’ve fallen on hard times and couldn’t come up with the money to settle your tax obligation, the stress is all the same. Figuring out the next steps can take can be pretty challenging, especially when the intimidating Internal Revenue Service (IRS) is breathing down your neck.
If you’re not sure what to do, here are some helpful strategies that can help you settle your tax debt before the penalties and fees start compounding on themselves.
Contact the Internal Revenue Service
To encourage U.S. citizens to pay their taxes, the IRS is willing to work with you to find a reasonable repayment solution that won’t result in financial hardship. If you know that tax season is approaching and you don’t have the money saved to pay what’s due, file for an extension before the deadline and you’ll receive and additional 120 days to submit your return.
However, if that deadline has come and gone, and you still owe the IRS money, there are several ways you may be able to settle your tax debt without draining your bank account.
- Request a payment plan
An installment agreement allows taxpayers to repay their debt over a prolonged period of time. Payments are made in small monthly increments, rather than handing over hundreds or thousands of dollars all at once. Keep in mind, though, this option is only available for tax debt less than $50,000 including interest and fees.
- Settle for less than you owe tax
The IRS may also agree to an Offer in Compromise (OIC) so they can recover at least a portion of the money owed to them. With an OIC, you agree to repay less than the full amount due. So, for example, if you have $500 in tax debt, you might offer to pay $250 immediately to have your name cleared.
- Seek innocent spouse relief
Have you landed in tax debt that you’re not responsible for? Perhaps a current or former spouse concealed a portion of their income, the IRS found out, and you are now held equally accountable for the back taxes that were never paid.
Whether you’re married or you’ve already settled with the divorce attorney, you may be able to qualify for injured spouse relief, so long as you can prove that you didn’t know the fraud was being committed.
- File for bankruptcy
If you faced bankruptcy in your business, then you can let your taxes waved off by IRS. Here is need to prove that your company is not able to pay taxes. In this way, the IRS will give you relaxation by evaluation of your situation. Some requirements of IRS should be fulfilled by you so that you may be eligible to discharge out taxes.
Hire a Professional Third-Party
As we mentioned earlier, the IRS can be pretty intimidating to deal with. If you’re having a hard time managing the stress on top of your finances, it might be in your interest use a tax settlement service that can work with the agency on your behalf.
The right professional should be able to help you navigate the entire process while analyzing your unique situation to come up with the best solution that saves you the most money. They’ll also be able to handle all the communication and can represent you in tax court, if necessary, so you can finally put an end to all those threatening phone calls.
Tax Tips to Take Home
While you budget and save money so you can settle your tax debt once and for all, there are some important considerations to bear in mind.
- File your current tax return, even if you haven’t paid in the past.
Let’s say you haven’t paid last year’s income tax and the next deadline for the current fiscal year is rapidly approaching. Even though you’re still in delinquency from before, make sure you file a return nonetheless and pay as much as you can, because the failure to file penalty is very expensive.
- Research tax breaks.
If you’re having a hard time paying taxes, find out which tax deductions and credits you may qualify for to lower your bill.
- Be proactive.
The best thing you can do is work to solve the situation as soon as possible, rather than letting back taxes fall to the wayside. Use these tips to take action and regain financial freedom.