Best Ways to Solve Back Taxes

When it comes to resolving back taxes owed there are many options. It is best that you learn all available options and see what fits your particular situation the best before any steps are taken. Some important factors to consider before deciding what back tax settlement method to use are your tax amount owed, the greatest amount you can afford to pay, the amount of assets (equity) you have, and if you would be able to pay amount in full if you just had more time. Below are the 5 most common methods to settling tax debts.

Offer in Compromise
An offer in compromise is the method that allows individuals to settle IRS back taxes for less than the total amount originally owed. Whenever you hear the saying, "Settle for Pennies on the Dollar", this is the method that is used. It shouldn't come to a surprise that this is most difficult way to settle with the IRS. The IRS has strict requirements to qualify for an offer in compromise. The offer in compromise tries to find what amount would work best for both the IRS and for the individual. What this means is that the IRS will settle your amount for less money if you can show that it is not worth the time of the IRS to try to collect from you because it will cost them more to try to collect than the amount that they would eventually end up collecting. An offer in compromise would be a good way of settlement if your total equity you have in assets is worth less than the tax amount owed.

Installment Agreement
An installment agreement is the most common method for individuals to settle their back taxes. With an installment agreement you will be required to pay monthly payments towards the tax amount owed in a period of less than 3 years. With an installment agreement you will still have to pay interest on the amounts owed plus and any penalties you may have received, so in the end up paying more than the original tax amount owed. An installment agreement should be used if payments cannot be made in full but you do have the ability to pay them off over time in smaller monthly payments.

Stall the IRS
If you simply need more time to pay the total amount due it can easily by done by using your understanding of the IRS system to your advantage. When taxes are unpaid it begins the IRS automated notice system. The IRS send a series of automated letters before it begins collections. Typically the IRS sends an original assessment letter stating the amount of tax owed plus any interest and penalties then it will send a series of four CP Letters (Computer notice noted by number on top of letter). These notices go for 4-6 months before the IRS takes action without any action taken on your part. To delay the IRS and buy yourself more time all you have to do is simply write a letter back to the IRS in response to their letter and state that you cannot pay at the current time and ask for a 45 day extension. If you still cannot pay by this time you can simply repeat the process to buy more time. Just know that once you receive IRS notice CP-504, you will not have much more time until they take collection actions against you.

Get IRS to classify you as Uncollectible
This way won't resolve your tax debts, but it puts a hold on collections. When you receive currently not collectible status, the IRS will temporarily stop collection activities against you and they will require that you submit an updated financial statement every year to see if your situation has improved enough for them to go after you and collect. Wile being uncollectible it is possible to have the statute of limitations expire and you will no longer be responsible for those tax debts owed.

Tax Expert
Tax professionals are many times the the easiest way to settle back taxes. Tax specialists have the best outcomes for getting offer in compromises accepted and for the least amount of money. They also have the best methods for setting up installment agreements that work best for individuals that cannot pay, or finding other methods that would better suit the individuals for their particular situation. Most tax resolution firms give free consultations and free quotes to try to get your business. It is best you get multiple quotes and find your best fit.

Thousands of individuals get into tax debt every year, don't feel alone. Tax code continues to get more and more complex that even the highest ranking IRS individuals don't even understand it. Understanding your options and taking action early is always the best to prevent more future penalties and interest.