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As one in ten Americans now owes money to the IRS, the latest tax plan and tax cuts don’t seem to be working for everyone. Owing the IRS is a stressful and challenging affair that most Americans struggle to claw their way out of. While the highest earners among us have access to the best accountants, those of us who struggle to get by fall behind the worst because we don’t have help.
If you fall behind with the IRS, here are four steps for paying off a bill and getting out of trouble with them.
1. Get on an Installment Plan
While your IRS bill might look pretty daunting as one lump sum, you can pay it off with the help of installment payments. While you can’t do this for every single bill that you owe the IRS, it can help make a hefty tax burden much more manageable.
In order to achieve this, the IRS must grant you the right of doing this as long as your tax bill is under $25,000. This does not include penalties and other interest that you’re dealing with.
If you want to qualify for this installment plan, you need to show the IRS some proof that you can’t pay the entire amount at once. You need to agree to a number that gets you to pay off the bill in under three years. In the meantime, you’ll be required to comply with tax laws.
For married couples who file jointly, you and your spouse cannot have failed to file taxes in the last five years. If you have had previous installment agreements with the IRS, you need to wait five years in between them. Otherwise, you won’t be able to get on a plan now.
The IRS can allow installment plans for bills over $25,000 if it’s clear that reasonable payments can be made. Expect to pay a fee to start the plan along with interest and penalties.
2. Work to Minimize Penalties
The longer you sit on a large tax bill, the worse your penalties will be. You’ll end up paying interest over and over while your bill climbs higher and higher. Thankfully, you have a few options for minimizing extra charges.
If you failed to pay your taxes in full this year but owed less last year, you don’t usually end up with a penalty for underpayment. So long as your withholdings were the same, you could avoid fees. You can reduce penalties and interest if you received more income in the late part of the year.
You can get a one-time abatement of penalties if you fall behind and end up dealing with a tax bill. Unusual tax events, unexpected mistakes, or the serious illness of a spouse could cause the IRS to waive the penalties. You need to explicitly ask for an abatement to qualify.
One of the most obvious ways to avoid penalties is just to pay off your tax bill ASAP. The longer that you wait, the more you’re going to owe. Even choosing to file an extension means that what you owe is due on the filing deadline. Avoid paying more than you need to by paying it in full now.
3. Deal with the Bill
If you can’t afford to pay, you need to get on the phone with the IRS as soon as possible. The longer you wait, the more the numbers are going to rack up. The people you deal with on the phone are going to be able to use their discretion to determine how they treat you.
If they see that you’ve been ignoring your responsibilities and haven’t tried to resolve the problem, they won’t be apt to help you out. If they find you’ve made every effort to reach out, contact, and resolve the problem, they’ll be more amicable.
If you failed to get on an installment plan before, get on one now. For the future, you should get on a plan where you can pay your taxes quarterly.
4. Settle Your Bill with an Offer in Compromise
If you’re underwater on your IRS bill, you don’t have to avoid the tax office forever. There are a few options for settling the bill for less than you owe. One of the most well known is called an “offer in compromise.”
While this is an extreme solution, tantamount to claiming bankruptcy, it’s a solution that can ensure that you settle the bill once and for all. This can allow you to settle the bill for less than you owe by negotiating back taxes.
In most cases, you’re going to have to offer at least as much as your net worth. If you have no net worth, you have a higher chance of paying it off at a reasonable rate. This is for people who have a massive tax bill that’s grown far beyond their control.
Settling your tax bill with the IRS is a complicated and headache-inducing affair. Rather than going through an Offer in Compromise, you can browse this site for some options for getting on an IRS payment plan. They have a diverse range of options that can work for just about any budget.
Owing the IRS Is a Common Stressor During Tax Time
Rather than starting the year off overwhelmed with stress over owing the IRS, you can get on track now to make sure you get ahead of any tax burden. If you manage to start paying your taxes on a quarterly basis, you’ll find that you won’t owe the IRS nearly as much at the end of the year.If you need help from a payday loan to get through to the next paycheck while you pay off your taxes, check out our guide for tips.