Nothing can stimulate panic like getting a notice from the IRS about your tax debt. Before you get all stressed out, learn about your options for reducing it then work out a strategy.
Here are some ways to reduce your IRS tax debt:
- Employ a tax professional. A tax expert can help you sort out your taxes, guide you through IRS regulations and policies, and represent you during negotiations. Search for tax professionals online, locate several in your vicinity then interview them about their fees and experience. You can also research on their backgrounds as well as visit message boards about their effectiveness.
- Negotiate an installment agreement. One way to pay off your sizable tax debt is through monthly installments. Transact with the proper IRS agents on the agreed installment amount and the duration of payment.
- Offer in compromise. You can get the IRS to reduce the amount you owe, in exchange for a lump sum payment or short-term installment plan. You will have to provide evidence that you cannot pay the full amount without drastically affecting your lifestyle. While the IRS rarely entertains compromises, a good tax professional can help you assemble the necessary evidence and successfully negotiate a reduction in your tax debt.
- Opt for a partial payment installment agreement. This is a long-term debt payment option with the benefit of a reduced dollar amount. This measure is easier to negotiate compared to an offer in compromise, but this relatively unknown tactic has an even longer duration of monthly payments as well as the absence of official instructions for availing of one. A tax professional is the key to exercising this plan. You will also need to fill up a Collection Information Statement which will inform the IRS about your capacity to pay the debt.
- Declare your tax debt not currently collectible. By showing you have no means to pay off your debt with your current finances, the IRS will withhold collection for about a year. Assemble the necessary documents and other evidence to prove the inadequacy of your finances then file this petition to the IRS in the Collection Information Statement. If you attain this status, the IRS will suspend all collection attempts and send you an annual statement of the amount still owed. Use this time to formulate a payback strategy.
- Appeal your tax debt. If you believe the IRS is in error about the amount of your tax debt, you can contest their claim with the office of appeals, a separate body from the IRS. Take note, however, that the IRS is known to vigorously challenge any appeal, and that the Tax Court itself will penalize you up to $25,000 should they find your appeal frivolous.
- File for bankruptcy. You can discharge your tax debts using the ruling of a Chapter 7 or 13 bankruptcy petition, which forces the IRS to deal with your Trustee, instead. Tax debts that have not been settled by your Trustee will be written off, allowing taxpayers a fresh start with their finances.
Resist being overwhelmed by your tax debt; simply talk to the IRS about your financial condition then break your payment strategy down into small concrete steps. The IRS is less interested in spending resources to put you in debtor’s prison than getting the taxes you owe them, so you have a chance of bouncing back from this setback.