Few things in life can be more stressful than owing money to the Internal Revenue Service (IRS). This becomes extra hard to deal with if your tax bill is more than the cash you have on hand. Fortunately, you have a few options to pay off your tax debt, depending on your personal situation. You can easily resolve the debt by following a few simple steps.
1. Review All Documents
If you owe the IRS money, first find out why. First, look for filing errors on your end. Be sure you marked your income and deductions correctly. Additionally, look for mathematical miscalculations and computation errors.
If you received a notification from the IRS and you don’t understand what it means, consult with a tax specialist. Many people disregard tax notifications, which leads to even more problems with the IRS. Tax paperwork can be very confusing, so if you do not understand an IRS notice or letter, find someone who can explain it to you or help you directly as your tax representative. It’s important to address the problem in a timely manner to avoid added penalties and interest.
2. Apply for an Installment Plan
One way to pay off tax debt when fast options are unavailable is to apply for an installment plan. An installment plan is an agreement between the IRS and taxpayers to settle existing tax debts in a more manageable way that will not put an unnecessary strain on your finances. Using this option means paying back tax debt over a more extended period of time instead of generating a large sum for a one-time payment.
The commission only enters into an installment agreement with taxpayers whose tax debts are below $50,000, but before establishing an agreement with the Internal Revenue Service, taxpayers must fulfill certain tax obligations.
If you're considering this option, it is advisable to work with tax professionals or certified public accountants to protect your interests.
3. Consider an Offer-in-Compromise (OIC)
Another way to pay off IRS debt is through an offer-in-compromise, which is commonly referred to as a tax settlement. This is an agreement between the IRS and a taxpayer that settles the debt for less than the amount owed. Similar to an installment plan, you must meet specific criteria in order to qualify. If you think you are eligible for an offer-in- compromise, it is highly recommended that you work with a tax professional so that they can analyze your financial situation to determine your request eligibility and the best way to present it for acceptance.
4. Pay Tax Debts in Full (the best way to pay off tax debt)
You can avoid tax interests and penalties by paying your debts in full to the IRS. The IRS makes it very easy for taxpayers to pay. The IRS Direct Pay tool is a safe, easy, and free way to pay your taxes directly from your checking or savings account. This process can be completed online through the IRS website.
5. Seek Advice from A Professional
If you have IRS-related debt, it’s essential to address it immediately. Review all documentation and choose the best solution to pay off the debt. These consultations are great opportunities to get some insight into what your options are. While working with a tax professional comes at a cost, some business owners will save more than they spend. Their insight on tax law may reduce penalties, avoid accumulating interest and get fees waived to minimize the impact on your cash flow.
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