How to Pay Off Your Tax Debt
Do you owe Uncle Sam?
If it’s any consolation, you’re not alone. In 2020 alone, Americans owned about $144 billion in back taxes.
You have a patriotic and legal duty to pay your taxes on time – and you probably do your best to keep up – but there are circumstances that can cause you to end up in tax debt. Perhaps there was a problem with your tax return or you were in a tight financial spot.
Because tax debt attracts penalties and even enforcement actions, it’s important to pay it off as soon as possible. If you’re struggling with that, you’ve come to the right place.
Read on to learn how to pay off IRS tax debt.
Find Out How Much You Owe
Maybe you have a rough idea of your unpaid tax bill. That’s a good start, but you need to know the exact figure. The best way to do this is to contact the IRS.
If you haven’t already received an IRS notice via mail, you can call the agency at 1-800-829-1040 and ask about your tax balances. You can also go to IRS.gov and log into your tax account.
Keep in mind that filing your taxes and paying your taxes are two different things. They also attract different penalties, with failing to file attracting a higher penalty than failing to pay.
Therefore, even if you don’t plan on making a payment to the IRS, be sure to file your returns on time.
Clear the Bill in One-Off Payment
Depending on how much you owe and your current financial position, you can pay off the tax bill in one payment. This is recommended since the IRS levies anywhere from 5% to 20% fine on your unpaid taxes, depending on the duration your bill went unpaid.
If you’re unable to pay it off once, pay as much as you can.
Get on an Installment Plan
The IRS understands that many people with unpaid taxes don’t have the ability to make one-off payments. This is why they’re willing to offer installment plans to make settling tax debt easier.
In a nutshell, you’ll have up to 72 months to pay off what you owe. You’re free to choose a timeframe that’s suitable for you. The longer the duration, the lower your monthly payments.
Although your failure-to-pay penalty will reduce by half when you enter into an installment agreement, the interest will keep accruing until you fully pay off the debt
Hire a Tax Resolution Professional
If you owe a lot of money that you can’t pay off even with an installment plan, it’s time to hire a professional that provides tax relief services. They’ll assess your situation and recommend the way forward.
For example, they can help you secure a suitable tax debt relief plan, such as an Offer in Compromise. You could even go for “currently not collectible” status.
Either way, getting professional tax debt help is a smart move.
Pay Off Your Tax Debt
Being in tax debt isn’t an ideal situation for anyone, especially in tough economic times. However, we all have a responsibility to render unto Caesar what is Caesar’s. The article has fleshed out your options, so the ball is now in your court.
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