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What are my options for paying back tax debt? P.1

| Oct 12, 2016 | Back Taxes Or Tax Debt |

Paying back tax debt is not always an easy task, for either businesses or individuals. Whether the difficulty is because of tight finances, an unexpected tax bill, both or something else, taxpayers need to understand their options for getting right with the IRS.

Two common approaches to paying down tax debt are to negotiate an installment agreement with the IRS and to make an offer in compromise. Installment agreements allow a tax debtor to make monthly payments until the debt is fully paid off. The benefit of going this route is that it can reduce or eliminate a tax debtor’s payment of penalties or interest. As long as the debt is paid off, there is no fee for setting up such an agreement. 

To qualify for an installment agreement, a tax debtor must owe no more than $50,000 in combined individual income tax, penalties and interest, and must have filed all returns. For businesses, tax debt must not exceed $25,000. Taxpayers who do not meet these requirements may still pay their debt down on a payment agreement. The key is to make sure minimum payments are met, otherwise additional problems can arise.

An offer in compromise is another option potential option for taxpayers. This option involves an agreement which allows the taxpayer to settlement the debt for less than the full amount. Typically, this is done when the taxpayer doesn’t have the ability to pay the debt back within a reasonable period of time of if doing so would constitute a financial hardship. The IRS must be able to see that the taxpayer is unable to succeed with a lump sum payment or a payment agreement. The agency will, therefore, look at things like the taxpayer’s income and assets, as well as other relevant factors, to determine the taxpayer’s ability to pay.

In our next post, we’ll continue looking at this issue and how an experienced advocate can help a taxpayer navigate repayment.  

Sources:

IRS, Offer in Compromise, Accessed Oct. 12, 2016.  

IRS, Payment Plans, Installment Agreements, Accessed Oct. 12, 2016. 

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