Every year, 17% of federal taxpayers fail to meet their tax obligations. Failure to pay federal taxes can have adverse consequences for the taxpayer. Some of them include seizure of your property and criminal indictment that could see you serve a jail sentence. However, if you have any outstanding tax debts for any reason, do not worry, here are some of the best Tax Settlement Tips for you.
1. Offer in Compromise
Offer in compromise involves you making a settlement proposal to the Inland Revenue Services (IRS). If the IRS accepts your proposal, you are required to pay only a portion of the debt while the rest is forgiven. An offer in compromise is a very useful tool where you cannot possibly meet your tax debt obligations. You could choose from one of the two settlement options available. Firstly, there is an option that allows you to pay your tax debt in five months in line with the agreement. Secondly, you could also negotiate to pay in the long term, an option that is more specifically known as Partial Payment Instalment Agreement.
2. Temporary Delay
If you experience a short-term financial hardship, this is the option for you. IRS will allow you to defer the payment for some time until when you can regain financial stability. Before you can benefit from this option, you first need to file an application to the IRS, who after considering your application and the supporting evidence, may declare you as “not currently collectible.” As a result, you escape the otherwise impending levy, lien, seizure and even criminal prosecution.
3. Instalment Agreement
Also referred to as a payment plan allows you to settle your tax debts over a specified period. The total amount of taxes owed is determined, and then you agree with the IRS on how much you will be paying per month towards its settlement. If your settlement agreement requires you to settle the taxes within four months, you will usually not be charged an additional fee. However, where the duration of payment extends to more than four months, an additional fee is levied.
The long term payment duration does not exceed 36 months from the date of signing the installment agreement. Unfortunately, you must have a good record for you to qualify for an installment agreement. If you have in any of the previous five years filed or paid taxes late, you are disqualified from the option.
Filing bankruptcy allows you to make a final settlement of your debts using your available assets. As a result, all that cannot be paid using your available assets is foregone, and the creditors cannot demand payment later if you obtain additional assets. Under chapter 7 and 13 of the Tax Code, some tax debts could also be foregone through the bankruptcy procedure. However, unlike other types of debts, a significant number of tax debts cannot be discharged just because you have been declared bankrupt.
Being declared bankrupt carries some legal disabilities. Therefore, you should not be quick to result to this option unless when you know that the advantages will outweigh the disadvantages.
The IRS and the law offer you several ways of settling your tax debt, some of which have been discussed in this article. When you find yourself overwhelmed by tax debts, it is advisable to consult an attorney or any other tax expert who will advise you on the best option depending on your peculiar circumstances.