The realization that you owe taxes to the IRS can put a knot in your stomach. After all, you put in all of that time and effort into doing your taxes, and it can be more than disappointing to find out you didn’t get a tax refund. However, if you owe the government money, there are simple ways to pay off your tax debt. Below are just a few strategies you can use to help you start tackling that looming debt.
- Make Sure the IRS Proposal is Correct. This is especially important. Before you start paying off your taxes, make sure the debt amount is correct. It may be a federal agency, but even government-funded institutions make mistakes. If needed, have a second pair of eyes look at your information. It could be that perhaps your deduction or credit proposals were incorrectly filed, and that one minor detail can cost you. An expert can help determine whether there were any flaws in your return or whether it is in fact a mistake on behalf of the IRS.
- Apply for an Installment Payment Plan. If in fact you do owe taxes, know that you do not have to pay it in full right away. This idea is a common misconception, which leads many delinquent taxpayers to avoid attempting to pay completely. A tax payment plan helps you pay without overextending yourself, and is a great way to show the government agency you’re doing your best to settle what you owe—which could mean less severe consequences in the long run. To qualify, you must owe no more than $25,000, and must be able to pay all of your debt off in three years or less. In addition, you must agree to pay off all of your future taxes and follow all tax laws.
- Propose an Offer in Compromise. While this is more difficult to attain, an offer in compromise is a great option for those who qualify. With an offer in compromise, you are able to pay off a lesser amount in taxes than you actually owe. In order to qualify for this type of request, the IRS will scrutinize all sources of income, including wages, salary, real estate, assets, social security, and more before offering you a payment plan. If this is something you desire, keep in mind that after the IRS decides you qualify for this plan, they get to determine how much you pay. They will most often bestow this agreement if they know that you cannot pay off your full debt in a reasonable amount of time.
- Budget for Payment. Whether you plan to pay in full, pay less, or pay installments, you need to rethink your current budget. Now that you have an extra expense, you may have to cut back on other monthly expenses to make up for it. You may want to consult a tax professional such as a certified public accountant or financial analyst who can review your finances to help you reach your goals, while still allowing you to pay off necessary monthly expenses. You may now need to cut back on the Starbucks lattes and going out to lunch every day, but it will be worth it in the end to get the IRS off of your back. Avoid finances such as high interest credit cards, refinancing your home, and other expenses that could possibly have an effect on your future financial wellbeing. Consult with a financial advisor to find what is best for you.
- Don’t Panic. If you owe a considerable amount of money to the IRS, the best thing to do is to stay calm. If you panic, you can start to make rash decisions or avoid paying taxes all together. Instead, take a step back and analyze your options. Paying back what you owe is possible, and you won’t always be under the thumb of this government agency. Approach the situation with a clear head and ask for help when necessary, and you’ll well on your way to digging out of debt.