What to Do If You Owe Back Taxes
Estimates of how much money is owed (and has not been paid) to the IRS each year are staggering…anywhere from $385 billion to up to $600 billion a year. The number of Americans estimated to be behind on their taxes is somewhere between 8 and 20 million.
There are many reasons for this gap between what is owed to the IRS and what is actually paid. The biggest contributor to this “tax gap” is the millions of people who underreport their income. Regardless of the reason, if you owe back taxes to the IRS, take note. While it is difficult for the IRS to follow-up on every dollar owed to them, they do come looking for their money eventually, and by the time you hear from them, you will likely owe much more than you did originally as interest and fees will have mounted.
So, what should you do if you owe the IRS back taxes?
Think Outside the Box
The IRS accepts many forms of payment. Credit card, check and money order are all acceptable. As we have mentioned, interest and fees can really add up, so you may want to compare the interest rates of your credit cards to the interest you will end up paying if you do not settle your back tax bill. You might be surprised to learn that your credit cards or even a loan might be a better option than letting the tax bill go.
Just because the IRS does not contact you immediately when you owe does not mean that they will forget. And, when they do contact you, you will owe the principal debt plus interest and penalties. The sooner you resolve the situation, the better.
Other Potential Options
If you are truly unable to pay your debt to the IRS, there are a few options that might be right for you:
- Installment Agreements: Installment agreements work very much like a credit card. Basically, instead of paying the tax debt in one large lump sum, you can apply to pay your debt over time (monthly payments are the most common option). You can complete the request online (online payment agreement application). Keep in mind that while this is definitely an easier way to pay your debt down, your interest will continue to accrue.
- Offer in Compromise: An offer in compromise is a way to settle your tax debt for less than what you actually owe. It is only granted in a small number of instances when it is proven that an individual cannot pay their full tax liability. The issue to keep in mind here is that you give the IRS information that can be used if they decide to pursue a tax lien against you. And, you have to stay in good standing with the IRS for a full 5 years after an offer in compromise. If you do not, the offer can be revoked and you can be on the hook again for the full amount.
Back taxes are a serious matter that require a lot of time and effort to manage. If you need some help with this process, contact Success Tax Relief today and let us help you strategize and negotiate with the IRS.