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IRS Tax Debt Guide
If you have a tax debt from past years, or have already done your taxes for this year and expect to owe money, you can find a solution. The solution is not to ignore the debt, however. Although the IRS only has ten years to collect a tax debt, it has many very powerful tools at its disposal during those ten years. You'll be much happier if you deal with it now. Possible solutions include: Savings and personal loans Extension of time to pay Temporary delay Installment agreement Offer-in-compromise Savings and Personal Loans If you owe an IRS tax debt, the best solution is to use your savings or borrow funds to pay the debt. By paying the full balance when it's due, the amount you owe will be much lower than if you request one of the IRS payment options, which will include penalties and interest. If you borrow against your home to pay the IRS debt, the interest you pay may actually be tax deductible. Extension of Time to Pay Tax Debt If you prepare your taxes before April 15 and know you won't be able to pay the tax due, you can file for an extension of time to pay. Depending on your circumstances, the extension will be anywhere from 30 to 120 days. Pay as much as you can early to reduce the penalties and interest owed. Interest averages 5% a month and varies by month. You must request the extension before April 15 in order to qualify. Temporary Delay If you're experiencing a financial hardship or other personal hardship such as severe illness or a loss of financial records due to a natural disaster, the IRS may grant a temporary delay of payment of your tax debt. In some cases, penalties may also be waived, but interest usually applies. You must contact the IRS to request the delay. The sooner you contact them, the sooner they can help you. Tax Debt Installment Agreement If your debt is large enough that you can't pay it within 120 days, you can request an installment agreement from the IRS. An IRS officer will review your income and expenses, and then determine a payment plan. Interest will apply, but the plan will legally extend the amount of time you have to pay. During that time, you must stay current with your tax returns and payroll taxes. You must also make every installment payment on time. If you fail to do either, the IRS may rescind the agreement. Offer-in-Compromise Offers-in-compromise are frequently advertised on television, but they aren't the simple tax debt solutions they're made out to be. Only 15% of OIC applications are approved. You must be able to show the IRS that this is the most you can afford to pay. As of 2006, there are additional restrictions governing OIC applications and agreements: You must pay a $150 application fee The IRS must process the application within 24 months or it is deemed automatically accepted (average time is 12 months) You must be current with your estimated tax or payroll withholding for the current year You must not be in bankruptcy You must have filed all required tax returns If offering a lump sum, you must make a 20% down payment If offering monthly payments, you must make those monthly payments while the offer is being processed. If you fail to make a 20% down payment or miss one of the monthly payments, depending on the option you chose, the offer will be considered withdrawn If you fail to file a tax return or pay a tax liability during the five years after the offer is accepted, it will be withdrawn and the full liability will again be due If you owe a tax debt, the best option is to pay it in full by the due date. If you can't do that, then consider the remaining options. Avoiding the debt is never the best option. Instead, contact a tax professional for helping finding the right solution for you. For more articles and suggestions, visit http://www.bills.com/debt-help/ Justin has 5 years of experience as a financial adviser; his key areas are loan consolidation, debt relief, mortgages etc. For more free articles and advice visit http://www.Bills.com Article Source:
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