There are quite a few methods you can pick to settle your back taxes. Before deciding on a specific method, you should probably consider all of your options that are available to you to find the one that specifically meets your individual needs. We have listed the 5 most useful and common methods of how to settle back taxes.
Have you ever wondered how people with financial strain manage to pay off their large debts? Well, they use the OIC method that enables them to pay considerably less than what they actually owe to the government.
Since it actually reduces the sum of tax you have to pay, there’s no surprise that this method is the most difficult to succeed at. The purpose of the OIC is to find a compromise of the tax amount that suits both the taxpayer and the IRS. Though there are strict requirements to qualify and succeed in getting an OIC, but by no means is it impossible if you have solid facts. An OIC is most likely to succeed if you can convince the IRS that the tax you owe is greater than all your assets combined.
Installment Agreements are the most common and have the highest chances of being approved by the IRS. In an installment agreement, you will be required to pay the total of your taxes in under 3 years by making monthly payments. If you are someone that can’t pay the debt readily but can pay it bit by bit through your paycheck, then getting in an installment agreement is a good idea.
There is also a downside for an installment agreement. All the penalties and interests you amass in the period of 3 years will still need to be paid, so, in the end, you end up paying more than what you originally owed them.
The IRS will not start the tax collection action immediately after giving you your first notice. Rather, the IRS is actually considerate when you request for more time.
After the IRS begins sending you notices for you to pay your debt’s, there are a series of more notices that follow. Normally the IRS will send an assessment letter compiled by reviewing your original debt, penalties and interests, that are followed by four CP Letters.
After you have received these letter the IRS usually waits for about four to six months before starting their collection process. Even after this time period, if you still need more time you can just simply write back to the IRS stating that you need a 45 days extension.
You can use this process quite a few times but once you receive IRS notice CP-504, you will not be given any more time and the collection process will be started soon after you have received IRS notice CP-504.
Not really a way to settle back taxes, but will allow you to put them on hold in case you are in no condition to pay your back taxes. After you receive your currently not collectible status, which you can do by contacting the IRS and providing the relevant information, you will have to report your financial status to the IRS every year.
Since the IRS has a 10-year limitation to collect back taxes, if you’re currently not collectible status lasts more than 10 years, all your tax debt along with you penalties and interests will become void.
Feeling a little hesitant or skeptical? Finding it hard to decide what method to pick or what of information should be documented? Then you should probably consider getting a tax professional.
Tax professionals have the highest recorded chances of getting you an offer in compromise (OIC), collect and organize all information that is relevant to your case, setting up ideal installment agreements, and finding other options that might be available to you to take advantage of.
It’s recommended that you try a handful of tax professionals to see whom you are most comfortable working with and charges a suitable price.
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