Depending on your situation, the IRS can grant you additional time to settle your taxes in full.
Paying taxes can be complicated, but it is not optional. If you leave it unpaid, then things can become worse, and you may face penalties. It can give you a substantial financial crisis, which might also get challenging to solve. When it comes to tax settlement, many people don’t know their options for dealing with their tax debt. Here are six best ways to settle your IRS tax if you are facing problems paying it.
1. Paying taxes through credit cards
You can ask the IRS for more time to pay your tax bill if time-shortage is your concern. It will offer you different payment plans. There are two types of installment plans: Short-term payment plan(120 days or less) and long-term payment plan(120 days or more). The IRS accepts payments from money order, debit/credit card, or by check. Choosing a payment plan doesn’t mean that you are exempt from penalties and interest for late payment. These will keep on increasing until your tax balance amount is zero. If your tax balance amount is $25,000, you should opt for automatic withdrawals from a bank account. Remember that if you make the payment using a debit/credit card, you also have to pay a processing fee. Payment done using a credit card is the right choice if you are sure that you can pay your credit card bills ultimately. If you are unsure about paying off credit card bills, it can also lead to credit card interest and other fees. In this case, you should consider other options.
2. Paying taxes by refinancing your home
If you can afford to pay your taxes by refinancing your home, the IRS has the option to re-fi. If your house has sufficient equity, then you can use that equity to pay your outstanding tax debt. Mortgage rates are comparably low, and although interest rates for home mortgages have gone up, you can deduct the home loan interests if you itemize. It is a big benefit as compared to credit card payments as the credit card interest is non-deductible. However, just like any other debt, proceed with caution. If you are already in the red, and you feel that refinancing your home to IRS will leave you in more significant debt, do not use this option as you could potentially lose your home for not paying taxes. If you are staying in areas with high property rates, you may need to plan your refinancing option carefully. For example, if you are in the Bay area, look out for Bay Area IRS Tax Settlement experts to resolve your IRS tax debt.
3. Pay taxes in installments through an Installment Agreement
If you are unable to settle your entire taxes at once, consider paying them in installments. Applying for an installment agreement with the IRS lets you pay them over time. You can apply for an installment agreement online or via mail. Before applying for installment agreements, you must file all your tax returns. The IRS will confirm whether your request for installment payments stands approved or denied within 30 days of receiving the request. Until you pay your entire bill, the IRS will charge you interest. While you are paying taxes in installments, you should also be ready that the IRS could potentially seize your refunds.
4. Paying a bargained tax debt through an Offer in Compromise (OIC)
An Offer in Compromise lets you settle your tax by paying less than what you owe them. It is some serious negotiation with the IRS. The IRS agrees to this settlement when they determine that you will not be able to pay the full amount within a period of time. The IRS estimates your expenses, income, asset equity, and ability to pay. Do your research before hiring a company that will promise they will get you an OIC. There are a lot of taxpayers for whom the IRS rejects OIC, and so, they are looking for good reasons for giving you a break. If you have not filed your tax returns, the IRS will return your OIC application. So, it would be best if you first are up to date with all payment and filing requirements.
5. Paying at a later date by merely asking for additional time
Depending on your situation, the IRS can grant you additional time to settle your taxes in full. On their website, the IRS suggests that all taxpayers should file taxes on time, even if they are not able to pay everything within time. It means that the IRS is willing to discuss and extend the time of full payment if you show proactiveness in filing your taxes and if you can showcase your willingness to pay by paying a partial amount. With the help of an Online Payment Agreement, you can request IRS to set up a direct debit plan for tax settlement at specific dates. That way, you do not have to wait for a bill from the IRS.
6. Struggling to pay taxes at all
Sometimes certain circumstances are not in our control. If you are in any such situation where you are unable to pay, then the IRS is ready to work with you. As per their website, IRS suggests that even if you are unable to pay the taxes, you should file your taxes in time and call the IRS helpline 800-829-1040 to discuss various payment relief options with the IRS. Some examples of payment relief options are like a short-term payment extension, an installment agreement, or simply declaring your account is currently not collectible and temporarily delaying the collection of taxes. In some cases, you may be able to waive off the penalties. Read the Form 1040 to understand more details on tax payments.
The above are the six best ways for the IRS tax settlement. It would be best if you never neglected your outstanding tax bills. When you delay it, the penalty and interest are only going to make it bigger. It is essential to take professional help to resolve your pending IRS taxes.