IRS tax debt is serious, and it is more common than people realize. In fact, estimates for 2019 had 30 million people owing money to the IRS instead of getting a refund. It can be a scary prospect to realize you need to settle IRS tax debt. Approach the process strategically to maximize the chances of it going well.
Pay in Installments
You can agree with the IRS to make installment payments. To qualify, you must have paid most or all of your state tax returns and your tax fees. Also, you must be current on your tax return filings. The IRS has a formula it uses to calculate your minimum required monthly payment. If you owe less than $100,000 overall, you may qualify for short-term repayment (120 days or less). A long-term payment plan might apply if you owe $50,000 or less.
Apply for an Offer in Compromise
An offer in compromise allows you to settle for less than you owe. Use it if you genuinely cannot pay your debt or if doing so presents a severe financial hardship. For this offer, the IRS considers your assets, income, expenses and ability to pay. You can fill this pre-qualification to see if this could be an avenue to pursue. For example, being in an open bankruptcy disqualifies you. If the offer is accepted, you pay either in a lump sum or in installments.
Modify Wage Garnishments
The IRS may get your wages garnished if you don’t take steps to settle. It may also be able to get Social Security payments and tax refunds garnished. If your wage garnishments present huge financial hardships, the IRS may agree to a modification.
Consider Innocent Spouse Relief
The IRS tax debt in question might not be directly yours but your spouse’s. Moreover, it may have been concealed from you. You could have had no idea that your partner was misreporting income or taking incorrect deductions. In these cases, you may be a good candidate for innocent spouse relief. If accepted, you may still owe some tax, but the IRS calculates the amount.
Turn to Credit Cards (with Caution)
Paying off your IRS debt with credit cards is sometimes a reasonable option. Credit card interest rates and fees get high, but IRS penalties outdo them in many cases. Draw up a possible credit card repayment plan, and see how manageable it is. As the section below explains, it’s difficult getting tax debts discharged in bankruptcy. It’s much easier to get credit card debt discharged. However, you cannot have charged your tax debt to the card with no intent or plan to pay it off (called fraudulent intent). You must have the intention to make your card payments.
Do Not Count on Bankruptcy
Bankruptcy can sometimes lead to the reduction or dismissal of IRS tax debt. However, this approach is complicated and often fails. In the best-case scenario, your debt does not get discharged for three years after the taxes were due, and you must have filed a return. If your debt does get discharged, the IRS could still place a tax lien on your property, rendering you unable to sell it.
Prioritize the Settlement
The fees, penalties and interest rates associated with IRS debt build up fast. Plus, bankruptcy is unlikely to result in the debt being discharged. Focus your efforts on settling the debt instead of putting it off as long as possible.
Get in Touch with Resolve Tax
Resolve Tax helps with many of the steps above, including offers in compromise, installment offers, wage garnishment releases and tax lien removals. Call us today at 1-800-721-3890 or submit an online contact form.
