Most people with IRS debt will agree that owing the Internal Revenue Service is stressful. They worry an IRS agent will arrive at their door to repossess valuable items. They have heard horror stories of people being sent to prison over unpaid back taxes. They lose sleep thinking the IRS will attach wage garnishments; leaving them little income to pay their bills.
If you are faced with IRS debt problems, the worst thing you can do is ignore the problem. Believe it or not, the IRS offers taxpayers multiple solutions to payoff back taxes. However, you must be proactive and initiate contact with the Internal Revenue Service. Otherwise, payment options will be limited and your worst nightmares could turn into reality.
Depending on the amount of IRS debt and your financial situation, the Internal Revenue Service might agree to write-off a portion of back taxes or reduce interest, penalties and late fees. The first step to eliminating tax debts involves contacting the IRS. If you are too intimidated about trying to resolve tax issues with the IRS on your own, consider hiring a tax attorney.
One of the easiest ways to payoff back taxes is to establish an IRS payment plan. Taxpayers with a tax debt of $25,000 or less can download Form 9465 Taxpayer Installment Agreement Request directly from the IRS website at IRS.gov.
In order to qualify for installment plans, taxpayers must file any past due tax returns. Therefore, tax payers should request copies of previously filed tax returns or consult with an IRS agent to make certain they are current with tax return filings.
When establishing an IRS installment plan, taxpayers can either pay back taxes in full, apply for a short term extension to pay taxes within 90 days, or request a long-term monthly payment plan. The IRS charges a fee of $105 to setup installment payments. This amount is added to the outstanding IRS debt. Taxpayers can reduce this fee to $52 if they establish direct deposit through their bank.
It is crucial for taxpayers to pay outstanding IRS debt as quickly as possible in order to avoid additional penalties and accrued interest. Many taxpayers make the mistake of failing to file tax returns when they owe taxes which they cannot afford to pay.
The IRS assesses a 5-percent failure-to-file penalty each month the tax return is late, but caps this penalty at 25-percent. If taxpayers owe $2500, they can potentially increase their IRS debt by an additional $625.
If taxpayers submit a tax return but are unable to pay the full amount of owed taxes, the IRS can impose a failure-to-pay penalty of 1/2-percent which is accrued on a monthly basis. Between penalties and interest assessed against back taxes and late tax return filings, taxpayers can increase the amount of IRS debt owed by upwards of 40-percent.
Other remedies for curing IRS debt include partial payment agreements and Offer in Compromise. Under partial payment agreements, the IRS agrees to forgive a portion of outstanding IRS debt. Taxpayers are required to pay a portion of the debt through an installment plan. As long as they adhere to the plan, the IRS will discharge the balance due once the agreement terms expire.
The Internal Revenue may enter into Offer in Compromise agreements if they believe they cannot collect the full amount of IRS debt from the taxpayer. This tax relief option is generally used as a last resort. Taxpayers must agree to let the IRS retain future tax refunds which will be credited to outstanding IRS debt until the balance is repaid in full.
There is no doubt IRS debt can be challenging to deal with. However, if taxpayers take initiative to work with the IRS to resolve tax issues, they may find the process is not nearly as daunting as they expected.
If you are experiencing IRS debt and personal finance problems, take time to browse our IRS debt article library. We offer numerous articles which can help visitors locate appropriate tax and finance information. New articles are added weekly and encourage you to subscribe to our mailing list to stay abreast of tax laws and personal finance solutions.
Published on May 24, 2010 at 02:18 AM
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