Five Tips for Repaying IRS Tax Debt

Unpaid tax debt is a problem for many people. Unpaid taxes, fines, and interest totaled more than $133 million in 2021. Naturally, the IRS wants to get its hands on that cash and provides a variety of programs to assist those with outstanding tax obligations in getting their affairs in order.

Although there are numerous reasons why people fall behind on their tax filing and payment obligations, worrying about how you’re going to make ends meet doesn’t have to be one of them.

1. Delay the Collection Procedure Momentarily

Delaying the collection process is the first step to restoring your peace of mind. The IRS will report your account as uncollectible and postpone any collection action until your financial situation improves if they think you cannot pay your tax due.

Sadly, a brief pause in the collecting procedure does not prevent fines or interest from escalating. The outstanding amount will be subject to the 5% failure to file penalty and the 0.5% failure to pay penalty.

If you are granted a short delay, the IRS stops trying to collect taxes. This safeguards you from state and federal tax liens and levies.

Although they are not a perfect solution, temporary delays can give you additional time to resolve unpaid taxes without having to worry about the IRS seizing your assets. You may use this time to research some of the other choices on this list.

2. Request a Payment Plan

If your tax burden is less than $50,000, you can divide it into manageable payments. All while using a payment plan or installment agreement. You and the IRS will decide on a manageable monthly payment and a timetable for paying off the debt as part of the application process.

Debts that can be repaid in 180 days or less can be put on short-term payment plans. The key advantage of a short-term payment plan is that there is no setup fee from the IRS. The 0.5% failure to pay penalty, which accrues, is the only additional expense under this plan.

Installment agreements are long-term payment plans that run longer than 180 days. Depending on how you apply and intend to pay, the setup charge might range from $31 to $225. The cost may be waived or decreased for low-income people.

With a payment plan, the IRS’s time to collect is suspended and you won’t be liable to tax levies, but penalties and interest continue to accrue as you reduce the sum.

3. Lower Costs Through Penalty Reduction

You can be qualified for penalty abatement, also known as one-time if it’s your first time filing late or receiving an IRS penalty.

Penalty abatement refers to the IRS waiving any accumulated late filing, late payment, or inaccurate information penalties (but interest still accumulates). As long as you have a history of maintaining good status with the IRS, this is a terrific approach to lower the amount you need to pay.

You must fulfill the following requirements to be eligible:

  • Submitting all tax returns on time.
  • All preceding taxes, excluding the one for which you are applying, have been paid in full or are covered by an installment contract.
  • Having not received any fines in the three years preceding.

If you can have your penalties waived, it is best to start paying down the debt right once. The IRS changes the payment deadline to the requested date. This means penalties for late payments will resume accruing as of the new date. These new fines will not be subject to reduction.

4. Consider a Compromise Offer

Companies who are unsure they can pay the debt in full might think about making a compromise offer. Even though it’s challenging to qualify, those who do will choose a workable alternative payment amount to make to the IRS.

The process is submitting an offer that you think you can accept and supplying evidence to back up your claim. Financial statements, projections, and bank statements are examples of possible papers.

Following the submission of your offer, the IRS either approves it or offers a better alternative. You won’t be allowed to submit any additional supporting documentation. Or submit a counteroffer after the greater alternative has been presented. As a result, it’s preferable to engage with a tax expert who knows to assist you to submit the strongest claim possible.

5. Ask a Specialist for Advice

Talking to a specialist about your tax debt can help relieve some of the tension. Before working with you, some tax professionals provide free consultations to learn more about your position. These sessions are fantastic chances to receive some free information about your alternatives.

While hiring a tax expert has a cost, some business owners find that their savings outweigh their outlay. Their knowledge of tax legislation may help minimize the impact on your cash flow by reducing fines, preventing accruing interest, and obtaining fee waivers.

The Conclusion With Your Part Time Accountant

It is possible to put the worry of tax debt behind you. It is feasible to lower your tax debt in a way that benefits your company, whether by utilizing one of the IRS’s programs or working with a third party.

Regardless of how you handle your outstanding debt, having assistance saves you from having to sift through applications and information to find your available relief alternatives. Dealing with a tax specialist will not only provide you with expert advice, but they will also represent you before the IRS.

With Your Part Time Accountant, we assist you in resetting your bookkeeping and taxes to restore the integrity of your company’s financial reporting. Treat your company to our team of specialists if it is lagging so that it may catch up and be in the clear for the present and the future.