So you have filed your taxes, and you realize that you can’t afford to pay your tax debt, what do you do? The IRS has different programs set up to help you pay your tax liability. One would be an installment agreement. Through installment agreements, you can make monthly payments to the IRS. The only way you can qualify for this is if the IRS deems that you are not financially able to settle your IRS back tax. The downside to installment agreements is that the IRS will impose both penalties and interest on your current tax liability. Prior to applying for an installment agreement you must file all required tax returns, determine the most substantial monthly payment you can make with $25 being the minimum, be aware that all future refunds are forfeited until your liability is paid off and you must be able to show that you do not have alternative ways to pay off your debt like taking a loan or using credit cards.
Another alternative is applying for an offer in compromise. An offer in compromise will allow you to settle your tax liability less than the full amount that you owe to the IRS. The IRS will consider many factors before accepting or denying this request. For instance, they will look into your ability to pay, how much income you net, what your expenses are and if you have asset equity that will help pay off your liability to the IRS. For this option, you must also be current with all your tax returns, and you are not in an open bankruptcy.
It is advised to go through a professional when trying to set up an installment agreement or applying for an offer in compromise. For more information or to speak with our tax experts, please call us.