Tax debt can seem daunting at first, but there’s a number of simple solutions that’ll help you get rid of it. Here’s what we recommend you try.
Paying taxes each year can feel like a huge burden on your bank account. Sometimes it’s hard to even think about staying afloat when you realize what a large chunk of your income needs to go to the government.
This reality means falling behind on your taxes can be far too easy. If you do fall behind, your debt can spiral quickly into a massive number, as penalties and interest add up. If you’re struggling with tax debt, things can quickly get overwhelming.
There are steps you can take to help lessen your debt burden and to get back on track with the IRS. Read on, and we’ll walk you through everything that you need to know.
Get All The Information You Need
You can’t approach a problem that you don’t fully understand. As such, it’s essential that you look into and fully understand the taxes you owe and where they originate from.
Why is this so important? Understanding your tax bill means you’ll be able to identify mistakes or errors that may be inflating your bill.
Look closely at your current return. Compare it to returns from years previous. Is there anything that seems amiss or strange? If you catch an error in your return, it could mean a great deal of relief to you.
If you truly feel as if you can’t understand your taxes alone, you could seek the help of a tax professional to help guide you through the process.
Evaluate Your Situation
The next step in taking control of your tax situation involves a little bit of self-reflection. If you’re going to successfully create a plan of action, you’ll need to know what you are and aren’t capable of.
Examine your current income, expenses, assets, and access to various lines of credit. How much of your debt could you pay off per month without putting yourself into danger?
It’s important to be realistic. There’s a good chance that you might have to live fairly uncomfortably for a bit, but you also don’t want to put yourself in the red. Land on a realistic amount that you could set aside to pay your taxes each month.
Once you have that number, you can start to put your plan into action.
Contact the IRS
You’re in one of two situations with the IRS: either they’ve reached out about the money you owe or they haven’t.
If you owe back taxes but haven’t been contacted, you might be in a more advantageous position to get things right. Individuals who voluntarily report past-due taxes generally have an easier time getting approval for relaxed payment plans and other such benefits from the IRS.
When you reach out to the IRS, you can propose a payment plan based on the amount you landed on in your monthly budget. In many situations, the IRS will consider and accept such proposals.
If this is your first time being behind on your taxes, you might be able to request a waiver to avoid some fees. The IRS does have a first-time waiver they sometimes offer to those who self-report late taxes after normally paying on-time.
Even if you have a history of paying your taxes late, the IRS may be willing to waive penalties or fees if you can show reasonable cause for why you are late. This can include things like severe medical situations or the loss of a family member.
Asking for relief can help shrink your tax debt by as large as 50% depending on the situation.
Landing On A Plan To Pay
There many different ways to pay off a tax debt. You can ask for an extension, pay by credit card, get on one of the IRS payment plans, or even secure a loan from another lender.
It’s important to understand that if you do agree to an IRS payment plan, you will be required to pay continually growing interest as time goes by. It’s worth comparing this interest rate to the one you might have with your credit card company or with another moneylender.
If all solutions seem too costly for you at the current time, you do have the option to ask the IRS to consider you Currently Not Collectible. In this situation, the IRS will make a determination on if collecting taxes would make it unable for you to live.
In this situation, the collection of your taxes would be put on hold.
Obtaining a CNC status is fairly difficult. If you plan on asking for such status, it’s highly recommended that you have a tax attorney assist you in this process. An experienced attorney can ensure you’re set up for success when it comes to applying for such status.
It’s essential that you figure out which of these pathways will best help you to pay off your tax debt. Avoiding the issue or hoping to hide from the eye of the IRS will only make matters worse– and more expensive.
These plans can help lead you out of debt and forward into a healthy, fulfilling life.
Managing Your Tax Debt
Struggling with tax debt can feel very overwhelming. You can’t be blamed for feeling frozen, or for struggling to figure out what to do. The above steps can help you make a plan to pay off this debt and get your financial life back on track.
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