When you have a tremendous amount of tax debt on your plate it can add to any stress you may already be facing in your life. Unlike other creditors it is impossible to ignore tax debt in the hope that it will go away. Most other creditors will eventually give up, turn your account over to a collection agency and depend on them to collect the money; the IRS does not work the same way and will never discontinue collection efforts. The only way you can stop the IRS from taking further collection action is to work out a payment arrangement with them instead of unrealistically thinking they will not catch up with you at some point in the future.
One of the most important things to do for your tax debt problem is choosing the best solution to eliminate the debt. While paying a few dollars a month may work if you don’t owe very much money, it will not work if you have a substantial debt—you may not even live long enough to ever pay all the taxes you owe after the IRS adds interest and penalties to your bill. Do not despair; there are several possible solutions for eliminating or reducing your tax debt.
- Contact the IRS to work out an acceptable payment arrangement
- Contract with a third party medication agency to help reduce your tax debt (especially important for those who owe back taxes)
- Contact the IRS for instructions and necessary form for filing an Offer in Compromise if your financial circumstances do not leave room for paying the taxes you owe
- Wait for the IRS to assign future refunds to past due taxes you owe. Keep in mind this method will not eliminate the assessment of penalties and interest.
- Borrow the money from the bank and pay your tax debt in full. The problem with this method is while you will be free of your obligation to the IRS, you will pay a higher interest rate than you will by working out a payment arrangement with the IRS.
There are many people facing financial crisis in the current economy, so asking your employer to deduct extra taxes from an already meager paycheck may not be the best answer for the present time. As difficult as it may be to ask your employer to take additional taxes out of your paycheck, you have to remember your tax debt is not going to go away just because you don’t make payments. In fact, this will have quite the opposite affect since the IRS will continue to add penalties and interest to your unpaid debt.
If your financial situation is so dire that you cannot afford to pay your tax debt, you may be a candidate for an Offer in Compromise. An Offer in Compromise is basically a settlement to pay a portion of your past due taxes. Depending on your circumstances you may be able eliminate all of the penalties and interest and some of the principal balance on your pat due tax debt. It is essential to work with the IRS to reach a compromise rather than avoiding the issue and hoping it will eventually go away.