Tax is a certainty, something that you have to pay to the IRS, despite whether you want to or not. Falling behind on paying the income tax can often be a very bad idea. In this process, you will not only owe them money, the government can find out and strike you with a bill you have not paid ahead of time. This time, with a pack of interest.
In case you owe the IRS a debt, there can be a couple of ways to settle with the IRS. Many of these options enable you to shrink down your tax liability, while a couple others help you spread the debt in instalments.
However, it is equally true that the IRS does not make it any easier for you to pay the debt, which is why it is important to make the right settlement option when there is still time. So, have you thought about how to settle tax debt with the IRS? Read ahead to find how to settle your tax debt with the IRS!
How to Settle with the IRS by Yourself?
The longer you delay the amount owed, the worse the consequences will be. However, every dark cloud has a silver lining. In the same way, it has become quite easier to settle with the IRS. Thus, there are a variety of routes to walk upon when trying to settle your tax debts with the IRS, all by yourself. In all cases that you might think of, the best way to reduce the total balance is by availing an Offer in Compromise.
One of the other options is by settling via the help of instalment payments, which can extend over months or years. However, note that these do not actually shrink your total debt burden.
Fortunately enough, the IRS also often signs a deal for those who can prove that they rather could not pay the tax due to lack of money, and not because they were on their way to cheat the government. You should just be aware about how to settle with the irs. So what are some ways you should know about in detail? Read ahead to find out!
How to Settle Tax Debt with the IRS?
Settling with the IRS can be an overwhelming topic for many. But there are ways that can help you regain control of the situation. Want to know how to settle tax debt with the IRS? Read ahead!
Instalments
Instalment plans almost look like home mortgages. But this time, instead of paying the lander each month, you are paying the IRS.
A tax-payment instalment plan is simply an agreement you sign with the IRS. However, in case you want to enter the instalment plan, the IRS needs to check whether you meet some of the major IRS requirements.
- You have been up to date when filing for tax returns.
- Almost all your state income taxes and late fees have been paid.
- You qualify to pay the monthly minimum payments that the IRS necessitates.
In some cases, remember that qualifying for a tax instalment might not be a feasible option. They are never interested in engaging with a taxpayer who is unable to make the monthly payments just on time. It is always a good idea to let the professional take care, if circumstances like these come into sight. There are a couple more ways regarding how to settle your tax debt with the IRS. And it needs you to read ahead.
Offer in Compromise
The IRS might consider a settlement enabling you to pay a reduced amount of what you originally owed in the tax-book, thus causing you to settle with the IRS. This is where you need to convince the IRS that you will not be able to pay the entire amount you owe, instead you are going to pay a reduced amount of the original payment, either in lump sum or by availing short-term instalments.
In cases like these, the IRS might as well ask you to fill a form when proposing for a compromise, charging you $186 as the filing fee.
When evaluating your application, they will also consider the net worth you come with, and the sources of credit, such as home equity lines of credit, or something as simple as credit cards. By the end, they will evaluate and compare your income against the monthly expenses in order to determine what amount you might be able to afford every month.
Either way, remember that you do not qualify for a compromise in case you have an open bankruptcy filing. Only when you are accepted in an agreement of compromise, you will be allotted a time frame of two years to gradually settle down the pile of your tax debt.
Release Wage Garnishments
In case you owe money, yet have not reached a point of payment agreement, the IRS can proceed forward to garnish your wages. They can also potentially garnish federal payments, until the time you have paid your tax debt, or in case the statutory time to collect it has passed.
There are cases rather flipped upside down as well. In case you have been struck with a garnishment, and fallen trap to not being able to afford to live with the leftover money, it’s best to immediately contact and settle with the IRS to propose a mutual modification.
If both of you are on the same page, the amount it garnishes might as well be reduced down.
Innocent Spouse Program
In case the IRS finds that you have filed a joint tax return with your spouse, even in situations where you both have been legally separated, it is likely that you can be individually accountable for an underpayment. For settling with the IRS, they might offer some amount of solace for either married or separated couples. It is on the occasion that their spouse, or former spouse, has actively hidden a tax liability from their partner.
If one partner among the two can represent that the other has failed to report the income, or has reported it rather inappropriately or took credits or deductions which were not permitted – the partner misled can be acknowledged with relief from the tax liability.
However, this is only possible for circumstances where you have materials to show that your spouse misled you. Typically, you will have a time of two years from the date the IRS first attempted to gather the unpaid taxes to file for relief.
What Happens If You Don’t Pay Taxes on Time?
For settling with the IRS, there can be a variety of options. However, there can be cases where you fail to pay the tax on time.
No matter how busy the IRS is when the tax season hovers, you’ll be penalised if you fail to pay the taxes you are responsible for. If a significant amount of time rolls past since the first tax deadline, it could actively seize one portion of your wages until you have fully settled the debt.
In case you expect a refund, you might risk losing the amount of money the government owes you. Taxpayers are expected to file within three years of the return due date – else, they have authority to forfeit any cash the IRS owes them. The rule remains the same for claiming tax credits, like the Earned Income Credit (EIC).
How Much Will The IRS Settle For?
“How can I settle my tax debt with the IRS?” The question has alarmed many. The IRS grants countless numbers of Offers in Compromise with taxpayers regarding their tax payments way past the due date. In cases where you have a reason, the IRS might also listen to your side of the story. They can decrease the tax obligation debt owed by the taxpayer in lieu of a lump sum settlement.
The approximate value for an Offer in Compromise was $16,176. The IRS typically settles for the amount they find fit for you, after gauging the amount you can pay. In order to determine this, they are going to consider your assets, including your home, income, monthly expenses (utilities, child care, rent, daily utilities), savings and all the way more. However, the average settlement on an OIC is almost $5,240. Let’s dive a little deeper:
- The standard deduction for married couples who have filed jointly has risen to $27, 700. It is almost $1, 800 up as opposed to the year prior.
- For single taxpayers, and married individuals who have filed separately, the standard deduction rises to $13, 850.
- In the case of heads of households, it is $20, 800.
- The Alternative Minimum Tax exemption amount is $81, 300.
You qualify to apply for an Offer in Compromise if you:
- Filed every tax return, alongside all estimated payments.
- Are not part of an open bankruptcy proceeding.
- Have a legitimate extension for a current year return.
- Are an employer who have made deposits for both the current and the past 2 quarters prior to applying.
Other Options to Settle Your IRS Tax Debt
- Partial Payment Instalment Agreement
There is a broad chance to settle with the IRS in case for a Partial Payment Instalment Agreement (PPIA) program. It can help you in settling with the IRS for less, yet with an “if”. For this, the IRS can agree to accept payments, smaller in amount, and spread over a longer timeframe. If your financial situation has improved, they can equally increase your payment. Get in touch with our tax advisory services to understand the depth of the situation.
- Not Currently Collectible
Currently Not Collectible is simply an account status option with the IRS. This means that you do not have the financial ability to repay your debt at this point, alongside your basic living expenses as well. If approved, the IRS is going to stop all collection attempts, levies and garnishments. However, this also means that your account is going to gain a hefty interest, and be subjected to late penalties.
- Bankruptcy Filing
The final option in your hand would be bankruptcy. You can dismiss income tax debts which are almost three years old by this form of bankruptcy. This also means that you have to be current on your tax return filings. However, it does come with a cost. You will have to pay filing fees, and also get in touch with a bankruptcy attorney.
So, How to Settle Tax Debt with the IRS?
Settling with the IRS might seem overwhelming for many, but if the situation needs attention – consider thinking through it with the help of Proffitt & Associates ! There are a variety of ways that can help curb not only tax debt, but also extend the time frame until which you can pay. Thus get in tough with the kind of irs representation you need!
The answer to “can I settle with the IRS?” is undeniably yes. How? The options to settle with the IRS are many. It is now up to you and the situation you have fallen into.
