Five tactics to reduce or pay off your IRS back taxes
Unfortunately, many Americans are struggling because of the difficult times brought on by our economy. In fact, you might be doing everything the right way – working hard at a job you don’t like at a rate of pay much lower than what you worked for in the past, maybe you’re working two or three jobs, and you’re making cuts in all the right places.
Despite your best efforts you might find yourself in a situation where you owe back taxes.
People owing back taxes typically have filed their returns, but then failed to actually pay them.
If you find yourself in a situation where you owe back taxes, you’ll find a number of unpleasant consequences:
- You owe the IRS taxes you may not have the ability to pay
- You owe penalties, and interest accumulates each day you don’t pay them
- You may owe the IRS additional taxes if you failed to report all income earned in the past year
How to Resolve Back Tax Issues
At this point, you may be tempted to fall into despair. You may have much more to pay in taxes than you have in your bank account to pay, and you may be working at a job far below your qualifications just to make ends meet.
What are Your Options?
- If you can, pay in one lump sum payment. Penalties and interest are accruing each day you don’t pay, so if you can come up with the full amount, the sooner the better.
- Use an Installment Agreement. An Installment Agreement is a plan to pay your taxes on a monthly basis based on how much you owe and your ability to pay. In order to qualify for an Installment Agreement, you must have already filed your Federal tax forms, and you are required to submit all your current financial information to the IRS.
- If your taxes are well beyond your means to pay, then you may qualify for Currently Not Collectible status. In order to qualify for this status, you must prove to the IRS your monthly living expenses exceed your monthly income. You submit form 433-F to the IRS, who then makes a determination.
- Another option for people who can’t pay is an Offer in Compromise. Basically, you must prove to the IRS that it could not collect the full amount you owe in back taxes in 4 or 5 years, even if you sold all the assets you currently own.
- If you have unpaid taxes from more than 10 years ago, then you don’t have to pay them back at all! The IRS has a limit of 10 years to collect any back taxes you owe. But, keep in mind that certain situations, such as filing bankruptcy (and others), extend this time limit.
Does All This Seem Like Too Much? Seek the Help of a Tax Attorney.
Navigating bureaucracies like the IRS that are not interested in helping you, or that may not make even remotely sensible decisions, can be a difficult undertaking if you go out on your own.
The help of a tax attorney isn’t necessary, but the expertise and knowledge of a tax attorney can help you save a ton of time and money in the long run.
