If you’ve found yourself owing back taxes to the IRS and/or your state Department of Revenue, you’re probably wondering what you can do to settle your tax liability and move on with your life. Fortunately, there are several options available if you need IRS and state tax help. Choosing a settlement option largely depends on how much you owe, how much you can afford to pay, your assets and whether you just need more time in order to pay in full. The following are some of the most common ways to make IRS and state tax settlements.
Installment Payment Agreements
This is a tax settlement option which works for most individuals. As the name implies, an installment agreement involves making regular (usually monthly) payments over a period of three years or less. This type of tax settlement gives you more time to pay, but also ends up costing more than if you were able to pay in full, since you’ll likely have to pay penalties as well as interest on the taxes you owe.
Offer In Compromise
This is one way to make IRS and state tax settlements which allows you to pay less than your actual tax liability. As you would expect, there are criteria you’ll have to meet to qualify for this option. However, for those taxpayers from whom collecting the full amount owed would be more costly than it’s worth, the IRS or state revenue department is sometimes willing to make a deal. If your assets are less valuable than the amount of taxes you owe, this option may be worth looking into.
Getting More Time To Pay
There are a few ways to buy a little more time to pay your taxes or to get professional IRS and state tax help. The IRS will send a series of notices (an initial assessment notice and then four CP notices) to taxpayers who owe back taxes before they begin any type of collection actions in earnest. You can get more time to pay by taking action when you begin receiving these notices. Simply reply by mail to the IRS explaining that you cannot pay what you owe at present and ask for an extension of 45 days. After this time has elapsed and you receive another notice, you can ask for another extension. Obviously, you can’t do this forever, but if you just need a few months to pay your tax liability, this method works well.
Another option is to request the IRS to put your account in what is called “Currently Not Collectible” status. This will stop collection efforts by the IRS temporarily. If you’re granted Currently Not Collectible Status, you’ll have to provide the IRS with annual financial statements – once your finances improve to the point that the IRS determines that you’re able to pay your back taxes, however, they will resume collections. The statute of limitations on federal back taxes is ten years, so you’ll almost certainly end up paying your back taxes as some point, but this option can be very helpful if you need a longer period to get your financial house in order.
Have more questions? The Your Tax Clinic Team is more than happy to help! Call us now for a FREE Tax Solution Consultation (855)220-0770