5 Steps to Resolve your IRS Tax Debt

Are you up to your neck in tax debt and are you searching on the internet for ways to get rid of or at least reduce the tax debt that has racked up so high that it is giving you sleepless nights now? Well this article just may help you out. Millions of Americans struggle to pay their taxes each year, this is a reality that just exists out there and people do not consider it much. The problem is rooted in our tax system but that is a topic for another time. 

The tax liens filed by IRS for the inability to pay tax debt have fallen by over 50 percent since 2010, that is a drastic fall but still many Americans struggle to pay up their tax debt. 

So what is the solution? What can be done to relieve this constant stress? Continue to read on and the steps listed below may just help you out. 

Identify The Problem

First thing that you need to understand is that if a problem exists, recognize it. There is no point in ignoring this problem by shoving it under the carpet, it will continue to grow bigger till it becomes close to impossible to contain it. If your IRS tax debt is still in its early stages, then congratulations. This article may help you in getting rid of it altogether and if your IRS tax debt has already piled up quite high, then you don`t need to be depressed because this problem is manageable. But it will only be managed when you see it as a problem. So this is where we wills start off from. Your IRS tax debt, or any debt for that matter is a problem. 

Mortgage debt is also a problem but it is not seen as such because the way it is laid out, makes it very manageable. It becomes a real problem when you cannot afford to pay for it, but in most cases the screening process of banks makes sure the risk of loss is minimal. IRS tax debt however, is not structured around the same lines as mortgage and for this matter it is not easily manageable. 

Once you start seeing IRS tax debt is a problem, we have made some headway. Okay so there is a problem and now it needs to be solved. The problem has been registered and now we just need to think rationally to try and find ways to manage this problem. 

Avoid Penalties

Next up, how can you manage the tax debt? For starters let us try to look at portions of the debt that can be controlled. IRS has a 5% late filing penalty and the percentage is applicable on the tax owed per month up to 25% of the balance. The 5% late penalty is on the tax owed. This can simply be avoided by filing your income tax return on time. Even if you cannot pay the tax, just file the return on time and in this manner you will avoid the 5% late filing penalty. 

Not filing the return on time just because you cannot afford to pay the tax is not going to do you any favor instead It will only exacerbate the situation. In addition to the late penalty, the underpayment penalty is 0.5%. This however cannot be avoided if you cannot for the moment pay your tax debt. But 0.5% is less than 5%, the 5% late filing penalty can be prevented and should be. 

Negotiate If Possible

Now that we have made bit of a start, what else can be done to manage the debt? If you are under serious financial stress, one that is difficult to come out of in the short term and if you think that you can convince IRS then you can apply for Form 656 that allows the application for the ‘offer in compromise’ Basically you can negotiate with IRS to settle the debt at a lesser amount than what you owe. Bear in mind that IRS is like any other creditor and in most cases will not reduce the amount owed but if you can make your cases and convince them that your financial hardship is severe then IRS may agree on a lower amount than you currently owe. 

Convert the Debt Into Installments

Next up, what else can be done to manage the tax debt? If you can get tax relief from IRS, good for you but if your financial situation is not that dire and IRS doesn`t grant tax relief to you then you need to look at other ways. Calculate your tax liability and see how much it is. If it is less than say $10,000 then you can handle it on your own, it is not so difficult. It does not make sense to hire a tax accountant when you are already facing financial difficulties. 

You can use the Form 9465 and apply to IRS to convert your tax debt into installments. This form can be filed online and IRS will automatically accept it if your tax liability is under $10,000. The installments will cover 3 years (36 months) including penalties and interest on debt.

Hire An Attorney

So what do people do who over $10,000? Well it may cost a little but the best option in this scenario is to hire a tax lawyer. Your lawyer or attorney will negotiate with IRS on your behalf because negotiating with IRS for debt in excess of $10,000 requires some technical expertise and unless you are a tax attorney yourself you need to hire one. You need to be careful about who you hire, ask friends and family members and search for a reputable and experienced attorney. 

An experienced attorney will charge you for the services but the attorney will end up negotiated very good terms for you with IRS, that may help you lessen your tax debt.

If your tax debt is really high then you may apply for a streamlined installment program. The government introduced the Fresh start program in 2011 for tax payers with debt up to $100,000. Eligibility requirements include filing of all past returns and no installment program in the last five years. 

Hopefully this article helped you out and helps you lower your IRS tax debt. Remember, the first step is to recognize the problem. It doesn`t just apply to lowering tax debt but to a lot of other scenarios in life too. 


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