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Posted by Dennis Jao

How to Settle Tax Debt

How to Settle Tax Debt

Tax debtors, it's time to pay up before the IRS comes for you. How to settle tax debt with the agency is easy and flexible. Some options allow you to deduct a few pennies, while others create an opportunity for installment payment. But the IRS is happy getting fat checks from you, so be conscious of what option to use.

Here are various ways you can settle your tax debt and get Uncle Sam off your neck:

Installment Agreement

You'll be happy with installment payments if you receive income on a payment plan. Your debt will be quoted in an agreed payment pattern monthly, quarterly, or annually but limited to six years. But you must remain on an eligible filing system to reach the reasonable limit. After that, you can Google the IRS website and start an installment plan. There are two installment plan options; one is long-term. Those eligible are people with $50,000 or less and the 120 days repayment plan for those with $100,000 or less. But if your pocket carries more than those amounts, you need a Collection Information Statement and Form 9465. 

Offer in Compromise (OIC)

This option allows tax deduction, meaning you'll pay less than you owe the IRS. You can use tax deductions on your assets, income, expenses, and other financial options. The deductions will either be approved or disapproved. Either way, the next phase is to choose between two payment options. One of the options allows you to pay your debt within two years. The good news is that people with rejected filings can seek an appeal, and there is a high chance of success. 

But you need to file your total tax returns, including estimated payments. If accepted, the agency will ask for a filed Form 656 booklet. But you must have 

  • Added your assets plus your monthly income multiplied by 12 or 

  • Add your assets, take away your expenses, and multiply by 24.  

The first option expects you to complete your payment in five months, while the second extends for six to twelve months. However, the evaluation will take six months, and the approval rate is low.  

Innocent Spouse Programs

The innocent spouse program is for spouses who file joint tax returns, whether married or separated. The upside is both parties will pay the debt individually. But you can dodge this repayment if you can legally prove that you did not know about the default taxes. In most cases, you must show that your partner mistakenly or purposely deducted the tax. The victim will seek asylum from tax liability. But the window to investigate and prepare the document is a maximum of two years. The IRS will approve a start date after first contact with the debt.

Statute of Limitations

The IRS is a force that deals with anything that concerns taxes, interest, and penalties within ten years immediately after the tax is filed. The statute of Limitation is also effective in resolving tax issues in the hands of an advisor. Most taxpayers explore the time limit by indulging in numerous appeals as a way to stall the tax levy, lien, or seizure until the deadline. However, be careful with this strategy because any error will place the ball in the IRS court. The IRS will increase the interest on your debt and still file strict penalties. The government will step in to get the lion's share. 

On a final note, don't default if you're on an installment payment agreement with the IRS and ensure the payments are made according to the contract. The penalty for defaulting is strict and easy to implement. The IRS enjoys imposing penalties to make a profit from your pain. The agency will quickly increase the interest rate to extract extra pennies from you.



Dennis Jao
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