A Step-By-Step Guide On How To Pay Off Your Tax Debt Quickly
Did you know the Internal Revenue Service (IRS) collected over $3 trillion dollars in 2018? They also returned over $460 billion in tax refunds. You can't find figures from the IRS about how much people owe but many faced a surprise tax bill from Uncle Sam in 2018. Were you hit hard by your tax bill? Do you have tax debt? Keep reading for a guide on how to pay off your tax debt worry-free.
Paying Off Tax Debt
If you have tax debt, you're not the only one. The most recent numbers show there are over 14,000 taxpayers with past-due tax bills. Owing the IRS can be stressful. Unlike other creditors, the IRS can in dire circumstances, take money straight from your bank account. They can also get their payment directly from your paycheck or take away your property. If, however, you owe the IRS, don't panic. There are ways of dealing with the debt without losing all your assets.
Always File Your Taxes
Always file your taxes on time whenever possible. Filing early can even help you avoid W2 phishing scams. You sat down, and run the numbers, but you're sweating. The numbers don't look good. You owe way more than you thought you would. Don't ignore it. At this stage, many people hide their heads in the sand and hope the IRS doesn't notice if they don't file.
Bad idea! You should always file your taxes, but what if you don't have the money? By not filing, you expose yourself to penalties, some of those penalties are criminal. Even if you don't have the money, filing is smarter than hiding. Make sure that you do file before the deadline. If you don't, late penalties could equal up to 25% of the balance you owe.
That only makes your tax debt far worse. you can opt to file for an extension. Even if you can't pay your full tax debt, pay as much as you can by the April deadline. You'll avoid some of the penalties and interest. You'll have four months to pay the IRS after the April 15th deadline. Are you waiting to file because you haven't received your W2 from your employer? Don't wait.
Use your previous pay stub which has all the necessary filing information you need. Yes, that's possible!
Ask The IRS For More Time
If the tax debt isn't overwhelming and you only need a little more time to pay, simply request more time. Get an Online Payment Agreement application here. If you want to talk to someone, call 800-829-1040. If you owe the IRS more than $25,000 dollars, you must make direct debit payments from your checking account.
It's a good idea to look at your last few years of tax returns in case you miscalculated. It's possible the IRS owes you some money from prior miscalculated returns. Remember that interest and penalties add up fast. Deal with the debt first before you go back and recalculate old tax returns. Can you convince the IRS that payment of the debt will keep you from paying basic living expenses?
If so, you can delay payment. But, again, you'll accrue interest and penalties on the total sum of the debt.
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There's good news! The IRS lets people make installment payments. You must meet certain conditions, however. If you haven't filed taxes every year for the last five years, you won't qualify. Also, you won't qualify for installments unless the total amount owed over the last five years is $50,000 dollars or less.
Think About An Offer In Compromise (OIC)
Sometimes it's possible to settle your debt with the IRS by paying less than the total amount owed. Like other payment plans with the IRS, you'll have to qualify first. The IRS looks at your financial circumstances before approving an OIC. What do they consider?
Here are a few of the things they take into account:
- Your income
- Your monthly expenses
- The equity in any assets you own
Understand that the IRS doesn't agree to an OIC most of the time. Upwards of 80% of OICs are rejected. The IRS only agrees when they're sure they won't get the debt owed within a reasonable amount of time. Like the installment agreement, your tax filings from the last five years must be up to date. There are fees associated with an OIC as well. And you won't qualify if you're going through bankruptcy.
Credit Card Payment
Credit card debt is high interest and not always the best choice. But the IRS does let you pay your taxes with a credit card. This could be a good plan if you know you'll be able to pay it off soon. You'll also pay an extra 1.8% to 2.3% for credit card processing. If you use a card, you're replacing your tax debt with credit card debt. If it allows you some breathing room and you can pay it off within a few months, it's a good option to consider.
This could be a better option than using your credit card. Mortgage loans are low interest. However, this is simply replacing one type of debt with another. If you've got equity in your home, a home equity loan could get you off the hook with the IRS. Refinancing for lower mortgage payments is another option if you've got equity. Make sure it's affordable for you before you do it.
If, however, you've got a big asset like a home, that's sometimes the best resource to use.
Paying Your Tax Debt to the IRS
No one likes doing their taxes and no one likes to owe a tax debt to the IRS. Most people agree that taxes are necessary for the good of all. Your taxes pay for schools, government, and infrastructure. If you've got tax debt, pay it off as quickly as possible to avoid penalties and interest. Always file your taxes. It's better to be up-front about your debt than to hide your head in the sand and hope it goes away.
Unfortunately, it won't. Ask for a tax extension if necessary, but pay as much of the debt as you can as soon as you can. Look into installment agreements or an OIC. Whatever you choose to do, do something. Don't ignore the IRS or else the tax debt problem could turn into a much worse issue. If you are self-employed, the way you report your taxes may differ from what is mentioned above.
Always stay on top of the most recent laws. If you're sitting around waiting for your pay stub, we've got a library of pay stub templates for you to browse through and choose the one that best suits you.
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