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Experiencing losses from a natural disaster such as an earthquake or fire
It’s easy to feel completely lost when you’re facing down tax debt. Fortunately, there are multiple solutions you can turn to for reducing your obligation and gradually paying off what you owe.
According to recent statistics, over 18 million Americans owe roughly $316 billion in overdue taxes to the IRS. If you’re one of many who still needs to pay what you owe, now is the best time to consider your options. Failing to pay your taxes could result in consequences, such as garnished wages or a lien on your property.
Why Do Americans Struggle With Tax Debt?
At least three-quarters of Americans in a recent survey reported being stressed by their tax bill. Many Americans struggle with tax debt for reasons such as an unstable financial situation or being overwhelmed by filing.
Other reasons Americans develop tax debt include natural disasters, miscalculating their income, or loss of a job. No matter your reason, resolving your tax debt is essential to reducing stress and developing a healthy relationship with your finances.
The good news – you have several options for resolving your situation.
#1 Seek Out A Taxpayer Advocate Service
Have you been struggling to resolve your tax debt for a while and don’t have the funds for a professional service? The Taxpayer Advocate Service (or TAS) is part of the IRS and will guide you if you’re lost.
Whether you feel unheard by normal IRS channels or have a unique tax debt situation, the TAS is your voice. Their role is to ensure taxpayers with financial difficulties receive up-to-date advice, particularly if they aren’t progressing with traditional tax debt channels. Taxpayers’ lack of progress could be caused by difficulties getting questions answered, lost paperwork, or a systemic tax issue.
They will also provide you with advice on how to avoid tax debt in the future.
#2 Reach Out To A Certified Accountant
If you have the funds, it’s a good idea to reach out to a tax professional to resolve your tax debt. Seek out a certified public accountant (or CPA) to make sure you’re paying off your debt right the first time.
A CPA’s job is to be deeply familiar with the tax code and IRS collection policies. They’ll be able to help with issues such as tax collection or any confusion you have around how you can pay the IRS. Below are a few tips to ensure you hire a trustworthy and experienced CPA:
Make sure they have several years of experience
Make sure they have several years of experience
Look for positive (and recent) customer reviews
Check if they’re enrolled in the American Society Of Tax Problem Solvers (ASTPS)
Check if they’re enrolled in the National Association Of Tax Professionals (NATP)
Check if they’re enrolled in the National Association Of Enrolled Agents (NAEA)
#3 Ask For A Payment Plan That Accommodates You
The IRS is more than willing to offer options to help you pay what you owe, even if you’re years behind or confused on what to do next. Just make sure you’re proactive and contact them as soon as possible.
Failing to keep an open line of communication with them may make them think you’re avoiding payment. This lack of action may result in additional penalties or taking money from your bank account. Reach out to them and ask for a payment plan that accommodates your financial situation.
You can request a short-term or long-term installment agreement. This form of repayment allows you to pay what you owe in small amounts until your balance is paid in full. If you feel you can pay in full later down the line, another option is requesting a temporary delay. However, you can only request a delay if you can prove financial hardship.
Financial hardship may include (but isn’t limited to):
Experiencing losses from a natural disaster such as an earthquake or fire
Attempting to avoid being foreclosed or evicted from an apartment
A severe illness or a physical injury
#4 File Your Taxes First, Then Ask For An Extension Later
Getting help with IRS tax debt also involves reducing more debt in the future. Even if you’re struggling to pay now, file your taxes on time and ask for extensions later.
Failing to file increases your risk of costly penalties. If you miss too many filing dates, you’ll start receiving letters from the IRS. They may send a Notice Of Federal Tax Lien to affect your credit or business assets. One of the consequences of tax debt is potentially placing a levy on your property to resolve your tax debt.
There’s a difference between requesting an extension to pay and an extension to file. If you want an extension for filing your return, you have to submit your request before the April tax file due date. Automatic extensions are allowed in times of crisis, such as living in a federally declared disaster area.
If your extension is approved, you can file your taxes by October 15th. If you need an extension on payment, you can then request an installment plan or consider an offer in compromise.
#5 Consider An Offer In Compromise To Reduce Your Obligation
Are you concerned that paying your tax debt could cause you or your family financial hardship? You might qualify for an offer in compromise, a method of payment where you pay less than your original obligation.
Qualifying for an offer in compromise involves submitting your financial situation for review. The IRS will take a look at qualifying details such as your income, assets, and essential expenses. They approve requests to ensure you’re able to pay a reasonable amount without being put in worse financial standing.
If you’re not sure whether or not you qualify, use their pre-qualifier tool to get started.
