What to Do About Tax Debt
Tax debt can be one of the must burdensome forms of debt, especially for small business owners and self-employed individuals. Likewise, employees who find that their employers have withheld too little money from their paychecks can find themselves facing a debt burden at tax time. Use this advice from debt experts to keep Uncle Sam happy.
First, keep in mind that the IRS is often more reasonable than the people who try to collect delinquent credit card bills. In general, IRS agents prefer to help taxpayers develop repayment plans for tax debt. Calling the IRS as soon as you fear you cannot pay your tax debt can win you an ally in the agency.
If you'd still prefer not to involve the IRS, or if the agency's debt repayment plan doesn't work for you, consider combining your tax payment with your monthly credit card bills. For a service fee, payment service agencies can accept a standard credit card to pay tax debt. While you still have to pay your regular credit card interest on your tax payment, you'll avoid the possibility of IRS debt collection.
Loan consolidation is another popular way for taxpayers to settle their balances with the IRS. In many cases, you may be able to deduct the interest on your debt from future tax returns by rolling your tax debt into a mortgage or a home equity loan.
Finally, if you are in dire financial straits, you may have to take extreme measures to eliminate your tax debt. Unfortunately, you cannot charge off tax debts during bankruptcy. However, IRS field agents may be willing to accept a one-time offer of partial payment to eliminate a taxpayer's balance.
If you're nervous about negotiating your tax debt down to pennies on the dollar, you can enlist the services of a non-profit debt counselor or a paid tax attorney to handle the call. While you can only take advantage of this option once in your life, it's a way to make a fresh start on your financial path.Sources
Internal Revenue Service
Miami Sun Sentinel