Every eligible taxpayer is expected to pay taxes and file tax returns annually. You might be facing a mountain of financial challenges, which is understandable. However, Uncle Sam expects you to abide by the law and pay; but if you cannot clear your tax debt by the due date, there are other legally viable options you can resort to.
Typically, the IRS is supposed to collect taxes due within 10 years from the date of filing tax returns. Upon negotiation, the IRS may structure the payment amounts in a way you can pay off within the collection period. If you choose to ignore the tax obligations, the IRS has all the rights to move in on your assets and recover the tax amount owed. IRS officials may slap a lien on your house, freeze the bank accounts, seize tax refunds which you were otherwise eligible to, or even garnish your wages.
All you have to do is to plan your tax payments well and you will never have to worry about any aggressive IRS collections methods.
The determination of the tax amount outstanding is the first thing you should do, since payment options vary based on the amount. Also, if you want to save yourself from a lien, ensure that the tax due does not exceed $10,000. If you have an untainted tax-compliance history, the IRS may relax the amount to be paid immediately and accept any proposed tax payment plan.
Offer-In-Compromise: This is an agreement between IRS and the tax payer to settle the tax debt at a lower amount than what is actually owed. This will however, depend on the debt amount and your income. The IRS scrutinizes your ability to pay, income, expenses, assets equity, amongst other factors before approving any OIC applications. You will be required to fill the IRS Form 433-A and Form 656 plus a $150 non refundable fee.
Credit card payment: The IRS penalties and interests are pretty high compared to some credit card rates. To evade paying nominal interests on your tax debt, the credit card payment might be ideal. Find out the rates from your credit card company and weigh the two options.
Grab A Fresh Start: The IRS is always coming up with a variety of options to enable as many taxpayers as possible to pay their taxes. The Fresh Start Program is available for taxpayers who owe less than $50,000 and your fail-to-file penalty can be waived up to six months by filing the IRS Form 1127-A
Installment Agreement Online: If you owe less than $25,000 and have up-to-date tax returns filed, then online payment agreement is a great solution. You can decide how much to pay per installment if you owe less than $25,000. However, if it exceeds $25,000, you will have to apply by filling a form 433-F to work out an Installment Agreement payment arrangement.
Installment Agreement For Large Balance Due: In case the tax due exceeds $50,000, you will have to apply for an Installment Agreement by filling the form 9465-FS and form 433-F plus the collection statement and sending them to the IRS via mail. Your financial information will be reviewed before the IRS approves your application. Upon approval, you may have to pay a fee that is totalled up based on the income, and the type of plan you may qualify.
That tax code is complicated, and most of the provisions contained may be confusing. It is for this reason that you might want to consider help from a professional, CPA, tax attorney, or enrolled agent who can negotiate with the IRS on your behalf. You must also keep up to date with changes in your life that might affect your taxes and proper estimation of your taxes; use the IRS Form 1040-ES for this.