Finance
5 Tips on How to Settle Your Tax Debt
Global Banking and Finance Review
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Most of us have incurred debt from the IRS at least once. Unless you’re born with a silver spoon in your mouth, you might have never experienced this before. For many taxpayers, the complexities of settling taxes can be time-consuming, especially for those who have incurred debt.
Most of us have incurred debt from the IRS at least once. Unless you’re born with a silver spoon in your mouth, you might have never experienced this before. For many taxpayers, the complexities of settling taxes can be time-consuming, especially for those who have incurred debt.
Fortunately, you can settle your debt with the IRS in several ways, and you definitely should since it’s punishable by law not to pay your taxes.
Failure to pay taxes will incur more taxes and punishments from the law. Your taxes will increase by adding more fees and extra interest on your balance.
Late fees usually start at 0.5%, and the interest comes at 3%. That might be a small number, but we can assure you that when you already have incurred a lot of debt, a mere 3% alone can cost a lot of money. However, let’s say that you still don’t want to pay your balance.
The government will then start garnishing your wages, which means they will directly take money from your paychecks. If it isn’t bad enough, they will also start filing liens and levies on your properties, like your car, house, and other assets.
It doesn’t end here; your credit score will also take a huge hit. As CreditNinja.com stated, debt plays a significant role in the computation of your credit card, so it’s natural that your credit score will also go down further. Let’s say you’ve finally seen the light and had enough of these consequences. How do you settle your debt?
Offer in Compromise or OIC, is a method in which the IRS will allow you to settle your debt with less than you owe. So it works by proposing the IRS by telling them what you can afford, your income, and other financial details.
It’s like making a plea by paying only a part of your debt, which they will settle. Of course, since it’s a proposal, they can either reject or deny it. If your proposal has been rejected, you can appeal the verdict, but it still doesn’t guarantee that it will be approved.
If you can’t pay your debt within 120 days, then there is one option that the IRS can do to help you manage your debt. That’s through a payment plan. A long-term payment plan, or an installment agreement, is like a contract that lets you pay your debt beyond 120 days. Of course, as the name suggests, you can pay for it in installments.
This one is simple. If you think you can still pay your debt in full but can’t assure that you can make it within the 120 days mark, you can opt for delayed payment. Usually, you must prove first that paying your debt within 120 days can prevent you from paying for daily living expenses.
Then naturally, they would allow you to delay your payment. They will then give you an extension, but eventually, you will accrue more debt and interest if you still get past that extension.
Also, if it so happens that your payment is categorized as Dishonored Payment, you’re going to get additional penalties. This payment is applied if you send out a check or an electronic payment, and it doesn’t get accepted because you don’t have enough money in the bank.
If you owe the IRS money but haven’t made a payment agreement yet, you can opt for the IRS to garnish your wages. While that is quite convenient, you must note that your Social Security and tax refund can also be garnished.
Of course, this would only happen until you have fully paid your debt. However, suppose you’ve been hit with a garnishment, but your daily living expenses are affected. In that case, you can propose a modification with the IRS to make it easier on your financial situation.
Currently, not collectible is an account status in the IRS, meaning you have no means nor financial capability to pay your debts and pay for your living expenses at the same time.
If your proposal is approved for a CNC, the IRS will stop collecting your income, like garnishments, levies, etc. However, note that your account is still applicable for late fees and interest, so it’s still in your best interest to pay the debt as soon as possible.
Not only cannot paying your taxes be a huge challenge to your financial status, but it’s also punishable by law. Luckily, there are several ways that you can settle your debt with the IRS. But in all seriousness, the very best thing that you can do is to not accrue debt by paying your tax debt in the first place.
A payment plan is an agreement with the IRS that allows a taxpayer to pay their tax debt in installments over time, making it more manageable.
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