Every year, the average American pays just over $10,000 in personal taxes.
Paying taxes is a patriotic thing to do, but it’s also a legal duty. However, whatever amount of money you pay in taxes, you probably wish you weren’t.
Unfortunately, if you make your wish come true or for whatever reason fail to pay your taxes, you’ll end up in tax debt. And because Uncle Sam (the U.S. federal government) doesn’t forget, the Internal Revenue Service will come knocking on your door.
So, what do you do when you have IRS debt?
Continue reading for ways to reduce and settle your tax debt.
Establish How Much You Owe
If you fall behind on your taxes for a year, you might have a fair grasp of the total amount of money you owe the government. But if you don’t pay your taxes for a couple of years, you will lose count of your tax debt.
Plus, the IRS levies interest and penalties on your tax debt. The longer you take the settle, the penalties will keep accumulating.
As such, the first step to settling your IRS debt is to know how much you owe. The IRS maintains an account for every taxpayer, so you just need to log into their system and access your transcript.
Get in Touch With the IRS to Work Out a Repayment Plan
Look, your tax debt isn’t going to vanish into thin air.
Well, technically it can, because IRS debt has a statute of limitations (the IRS has 10 years from the date of the initial assessment to collect what you owe), but don’t count on it letting the years roll by.
Therefore, it’s in your best interest to pay up what you owe.
The IRS offers multiple programs for people who owe taxes. These programs have different qualification criteria.
For instance, if you’ve been filing your taxes and the amount you owe isn’t large, you could qualify for the installment plan. You’ll make a monthly payment to the IRS until the debt is fully paid off.
Then there is the offer in compromise program.
If you prove that you’re unable to settle your tax debt, the IRS will reduce the amount. You will then make a lump sum or installment payments. Qualifying for this program isn’t easy, so you need to know how to get an offer in compromise approved.
Hire a Tax Professional
Although some tax debt issues are fairly straightforward, others can be complex.
If you owe $50,000, for example, it’s unlikely that you will work out a suitable repayment plan on your own. The IRS might also be hot on your pursuit, possibly looking to garnish your wages or place liens on your assets.
If you’re in such a situation, hire a tax advisor. This professional will help you negotiate with the IRS until a suitable repayment strategy is reached.
Put IRS Debt Behind You
In life, taxes are certain. However, sometimes life happens and you’re unable to pay your taxes. IRS debt, like any other debt, must be paid.
With the tips fleshed out in this article, you now know the steps you can take to reduce and eventually pay off your debt.