Are you drowning in back taxes and unable to pay what you owe? Have you considered a tax settlement to help you get a handle on your finances?
While it’s true that the IRS appears to be a big, scary, all-powerful entity that could (in theory) take your money, your assets, and even your home, wage garnishment and tax levies are actually the last resorts to collect unpaid tax debt.
In reality, the IRS is often happy to reach an agreement that gives the agency a portion of the tax money owed and allows the IRS to close out your case. Such an agreement is called a tax settlement. (And the same goes for state tax debt. Your state tax organization is most likely willing to listen to a settlement offer, too.)
A tax settlement may allow you to settle your case for less than the original amount of money owed. You might also negotiate for a more favorable payment plan.
Business owners have many of the same options as individual taxpayers, including negotiating a settlement agreement, an offer-in-compromise, a penalty abatement, or a 45-day extension. A tax attorney or tax debt relief firm that specializes in business taxes can help you.
An installment agreement is a payment plan for your tax bill. It’s an agreement you reach with the IRS that permits you to pay your tax bill in equal monthly installments over a period of years. In order to qualify, you must owe less than $50,000 in combined tax debt, interest, and penalties. If you owe business taxes, you must owe less than $25,000.
You must also be up to date on all your tax filings and, if you are a business owner, you cannot be behind on payroll taxes.
Your installment agreement is based on your income and the amount of taxes owed. A professional can help you negotiate a fair arrangement.
You can file for “Innocent Spouse Relief” using IRS form 8857 and the IRS may determine that you are not responsible for your spouse or ex-spouse’s back taxes. The paperwork to file is complex, and your spouse or ex-spouse will be notified that you filed the form. It’s best to seek professional tax help before endeavoring to apply for innocent spouse release.
An offer-in-compromise is another agreement you can reach with the IRS. This option is even more favorable, because it could actually lower your tax bill.
In many cases, tax debt is not included in a bankruptcy. In addition, a bankruptcy stays on your credit report for 10 years and can make it more difficult to finance a vehicle, obtain a mortgage, rent an apartment, or even find a new job. We do not usually recommend bankruptcy to get out of debt, including tax debt.
However, if your income tax debt is at least three years old, and meets other requirements, you may be able to include it in a Chapter 7 bankruptcy filing.