Taxes are the duty of every responsible citizen. However, there are times when people fall behind on their due taxes because of various reasons, and they need knowledge of how to settle back tax debts There are some who are faced with an emergency medical issue, death in the family, divorce, economic hardships, job loss or plain tax evasion among many reasons.
Whatever the reason, an outstanding tax balance is never excused that immediately. It can definitely add to anyone’s worries. When tax debt piles up, your financial situation only worsens because penalties and interest will increase your total liabilities.
The Gravity of Unpaid Taxes
Unpaid taxes are no laughing matter for the IRS. It is their mandate to pursue tax payments aggressively. While you may be terrified of the prospect of the IRS running after your tax debts, it will be your biggest mistake if you choose to ignore these unpaid taxes.
The IRS has the full machinery of the government and they can use it against you to make you pay your tax debts. Even without a court judgement, the IRS can get to your wages, enforce liens against your properties and put a levy in your bank accounts or 401k. The liens are very dangerous. Once they are enforced; they are already a secure claim.
Reasonable Solutions for Tax Liabilities
The IRS is not as heartless as it seems. With the knowledge of how to settle back tax debts you can get relief. They have also created programs to make it easier for taxpayers to settle their back tax debts without sacrificing money for daily expenses.
However, do not expect that the IRS will offer forgiveness on tax debt. Only select delinquent taxpayers are given the benevolent benefit of tax erasure. Typical solutions come in the form of affordable payment plans:
- Offer in Compromise: An Offer in Compromise lets a taxpayer pay the IRS a lesser amount than what is actually owed. This is typically a win-win solution because the IRS gets the initial amount borrowed while the tax debtor will have to pay a reduced amount. However, not all people get this tax relief and the requirements and qualifications of the IRS are really strict.
- Currently Not Collectible Status: When a taxpayer is categorized in the Currently Not Collectible, the IRS will not try to collect the tax debt from you. This relief is extended to people who are experiencing extreme financial hardship or those with a limited and fixed income. This status lasts for a time and will open your case to re-evaluation by the IRS. However, similar to the Offer in Compromise, only select cases will be granted with this status.
- Penalty Abatement: The IRS can choose to cut down your penalties if you can show to them that you have no ability to pay your debts. Note that interest cannot be eliminated by law in most cases.
- Installment Agreement: A monthly payment under an installment agreement is the usual solution extended by the IRS. This will allow you to have time and flexibility to manage the payment of your IRS tax liabilities.
Some taxpayers may also avail themselves of the Partial Payment Installment Agreement. This is a modified monthly payment plan wherein tax debtors will have smaller payments that amount to less than the actual liability owed.
- Pay Your Liability in Full: If you can settle your tax debts right away, do it. This will save you time, money, effort and even stress. Moreover, the IRS expects you to pay the debt immediately if they find out that you have the necessary assets to free yourself from the tax debt.
Back tax debts are serious and they require your attention as soon as possible. The more time you waste ignoring your liabilities, the harder it is for you to have financial freedom.
