Your financial life may face difficulties if you owe taxes to the IRS. Complicating this situation further, for some people who owe tax debt, is the new amendment in the FAST Act (Fixing America’s Surface Transportation Act). This new law gives the federal government the power to revoke your passport if you’re “seriously delinquent” ($50,000 or more in debt) on your taxes.
Fortunately, you do have some options to get out of tax debt, there is hope no matter how bleak the situation may seem.
This blog post will give you 10 proven ways to settle tax debt.
1. Pay tax bill
When you receive a tax bill from the IRS try to pay the amount as soon as you can. By doing so you can save your precious dollars on penalties and interests. You’ll owe more to the IRS if you delay the payment.
2. Use the IRS Direct Pay
You can pay taxes by using the IRS Direct Pay tool on the IRS website. This tool helps to pay taxes directly from your savings or checking accounts. Moreover, it’s safe, easy and free.
3. Make installment payments
With the help of a debt management program, you can pay back your IRS tax debts at a reduced amount. You can pay off your unpaid taxes in installments rather than paying the total amount all at once. Negotiations should be done by a licensed tax resolution specialist or a well-qualified tax debt attorney.
4. Get a short-term extension of time to pay
Call the IRS at 1-800-829-1040 and check out whether or not you qualify for a short-term extension of time to pay. If you can repay all your dues to the IRS in 120 days or less, you should qualify for a short-term extension.
5. Apply for an offer in compromise (OIC)
An OIC helps to reduce the total amount of taxes you owe to the IRS. If you have a huge amount of tax debt and paying it in full will cause you financial hardship, you can apply for an OIC. Use the OIC Pre-Qualifier tool on the IRS website to check out whether or not you qualify for an OIC.
6. Make use of a monthly payment plan
Paying tax debt is no more difficult with the help of IRS’ monthly payment plans, especially the direct debit payment plan. It’s low cost and hassle free; plus, you won’t have to pay a set-up fee.
7. Apply for currently not collectible status
Through this program, the IRS won’t collect tax debt from you for a year or so. You’ll be declared as “currently not collectible” by the IRS only if it finds that you’re unable to pay back your tax debts. This status can be useful as it provides you the time to arrange money to repay your debts.
8. File bankruptcy
In some cases, you can get tax debt relief under Chapter 7 or Chapter 13 bankruptcy. Allowable debts may be fully discharged in a Chapter 7 bankruptcy. Whereas a Chapter 13 bankruptcy provides you a payment plan to repay some of your debts in a time frame that meets your abilities to pay.
9. Take advantage of innocent spouse relief
If you have acquired your spouse or ex-spouse’s tax problems, find out whether or not you qualify for the IRS innocent spouse tax relief.
10. Concentrate on the expiration of the statute of limitations
The IRS provides a time of 10 years before collecting your unpaid taxes, penalties, and interests. If your tax debts are from more than seven years ago, you may not want to rush to pay off unpaid taxes, because the expiration of the statute of limitations period could be close...
Words of Caution
You may lose your tax refund in the hands of the IRS if you have debts. It’s known as the tax refund seizure. Generally, the IRS uses that money to repay your past tax debts, student loan debts, or dues on child support payments.
If you plan on getting a tax refund anytime soon, you'll need to clear off your debt debt ASAP.